Can pension be restored after 12 years?

Currently, the rule is 15 years. However, pensioner associations are demanding a reduction to 12 years in the 8th Pay Commission because the commuted amount is fully recovered with interest by the 11th year.

What is the rule for commutation of pension 2026?

You can commute up to 40% of your basic pension. The commuted portion is deducted from your monthly pension for 15 years, after which full pension is restored automatically.

Why is the demand for 12 years restoration raised?

The demand is based on the calculation that at current interest rates, the principal plus interest of the commuted value is recovered in approximately 10.8 years. The remaining deduction is seen as an excess charge.

Commutation of Pension: Will Restoration Period Reduce from 15 to 12 Years? (8th CPC Update)

Quick Summary: Central Government Pensioners are aggressively demanding a reduction in the “Commutation Restoration” period from the current 15 years to 12 years. The argument is simple: with falling interest rates, the government recovers the entire commuted amount (plus interest) in just ~11 years. Why pay for 4 extra years?

The Core Issue:

Lump Sum Taken: You sell 40% of your pension upfront.
Restoration Time: You get full pension back after 15 years.
The Reality: Mathematical analysis shows the loan is repaid fully in about 10.8 to 11 years. The remaining years are pure profit for the government.

The Math: Why “12 Years” is Fair

When you commute a part of your pension, it is essentially a loan from the government charged at an interest rate (historically around 8% reducing balance). However, mortality tables and interest rates have changed significantly since the rule was framed in 1981 (Supreme Court judgement).

The Breakeven Calculation

Let’s look at the numbers cited by Pensioner Associations to the 8th Pay Commission:

Year of Recovery	Status of Principal + Interest
Year 1 to 10	Principal Repayment Ongoing
Year 11 (approx)	100% Recovery Completed
Year 12 to 15	Excess Payment by Pensioner

Historical Context: The 1987 Judgement

The 15-year rule comes from the landmark Supreme Court judgement in Common Cause vs. Union of India (1987). Back then, interest rates were high. Today, with interest rates hovering around 6-7%, the recovery happens much faster.

The Kerala & Gujarat High Court Angle: Several cases have been filed recently arguing that continuing deduction beyond full recovery violates Article 14 (Right to Equality). The 5th and 6th Pay Commissions acknowledged this but did not recommend a change due to “administrative complexities.”

Will 8th Pay Commission Accept This?

The demand to reduce restoration to 12 years (or even 10 years for super-seniors) is a priority item in the JCM Staff Side memorandum.

Arguments in Favor:

Interest Rate Drop: Commutation value is calculated based on an 8% discount rate, but market rates are lower.
Life Expectancy: Pensioners are living longer, but that doesn’t justify over-recovery of the loan.

Arguments Against (Government View):

Risk Pooling: Commutation is based on a “pool of pensioners.” Some die early (before repaying), so those who live longer subsidize the loss.

What Should You Do?

Currently, no official order has been passed to reduce the period. Pensioners must continue to track their 15-year completion date for automatic restoration.

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