Commutation in Pension

[ASHOK DEWANI]

Does Commutation work like a Loan given to the Pensioner and repayment
of Loan by accepting reduced Pension, which works like EMI ?

Or a Pensioner accepts lreduced Pension and 180 installments of
reduced Pension makes the Commuted amount full with interest and the
Pensioner's full Pension gets restored.

The above needs to be understand minutely.

Because, if the Pensioner dies after paying 179 installments, who is
the Loser ?

Dewani

[perumal maruthu]

Dear sir,

To derive the full benefit of Commutation, the pensioner has to commute his eligible fraction 33% or40% immediately on retirement. There is an inbuilt interest factor of 4.75% loaded in the the repayment instalment. The lump sum commuted amount can give you multifold finanacial leverage. If profitably invested or atleast invested in Cumulative FD, can yield better results.

Considering its present purchasing power vis a vis its future eroded value due to inflation, it will be profitable to get an annual yield of more than the rate of inflation.

EMI is entirely different having so many hidden mines.

Some one here has opined that Commutation would be more beneficial if the Pensioner dies immediately after commuting  as the same need not be repaid.. This is a wrong notion on Pension and the precious LIFE.(Such mass suicide may force the Banks to alter the Terms) Pl approach pension from social security angle and not weigh on a scale of P&L.

I don't understand your last query. You should be proud that you have repaid almost in full.

M.Perumal

Chennai

NB: Partial commutation as in the case of 5years restoration in SBM/VB, is not beneficial as the repayment period is very less.

From: ASHOK DEWANI <ashok...@gmail.com>
To: bankpensioner <bankpe...@googlegroups.com>
Sent: Monday, 9 April 2012 5:47 PM
Subject: bankpensioner Commutation in Pension

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[rajkumarnegi]

commutatin formula is different in every bank at age level, at 55 ,58,
and 60 and the conerted amount is also different. I got VRS from SBI
in 2001 and got Rs 1,38,000, as commutation and My recovery is Rs one
third of 4250/ ie 1416/ for 180 monrhs, similarly a retiree from P.N B
or other bank gets Rs 186,000/ and the recovery is the same one third
of 4250/ i.e.,Rs1416/ for 180 months, why , when the EMI for the loan
is the same for every lonee, why the State Bank of india retirees
return more money than the other bank retirees, here the rate of
interest charged by the bank is much higher as compare to EMI. so my
suggestion is , the commutation account should be opened in the name
of pensioners and maximum rate of interest on staff loan should be
applied as and when it comes to zero , the instalement should be
stoped, in this way the period will comedown to 140 to 150 months.
please give your valuable suggestions. thanks.
Rajkumarnegi

On 4/9/12, perumal maruthu <perumal...@yahoo.co.in> wrote:
> Dear sir,
> To derive the full benefit of Commutation, the pensioner has to commute his
> eligible fraction 33% or40% immediately on retirement. There is an inbuilt
> interest factor of 4.75% loaded in the the repayment instalment. The lump
> sum commuted amount can give you multifold finanacial leverage. If
> profitably invested or atleast invested in Cumulative FD, can yield better
> results.
> Considering its present purchasing power vis a vis its future eroded value
> due to inflation, it will be profitable to get an annual yield of more than
> the rate of inflation.
> EMI is entirely different having so many hidden mines.
> Some one here has opined that Commutation would be more beneficial if the
> Pensioner dies immediately after commuting  as the same need not be repaid..
> This is a wrong notion on Pension and the precious LIFE.(Such mass suicide
> may force the Banks to alter the Terms) Pl approach pension from social
> security angle and not weigh on a scale of P&L.
> I don't understand your last query. You should be proud that you have repaid
> almost in full.
> M.Perumal
> Chennai
> NB: Partial commutation as in the case of 5years restoration in SBM/VB, is
> not beneficial as the repayment period is very less.
>

> ________________________________

> From: ASHOK DEWANI <ashok...@gmail.com>
> To: bankpensioner <bankpe...@googlegroups.com>
> Sent: Monday, 9 April 2012 5:47 PM
> Subject: bankpensioner Commutation in Pension
>
> Does Commutation work like a Loan given to the Pensioner and repayment
> of Loan by accepting reduced Pension, which works like EMI ?
>
> Or a Pensioner accepts lreduced Pension and 180 installments of
> reduced Pension makes the Commuted amount full with interest and the
> Pensioner's full Pension gets restored.
>
> The above needs to be understand minutely.
>
> Because, if the Pensioner dies after paying 179 installments, who is
> the Loser ?
>
> Dewani
>
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> bankpensione...@googlegroups.com.

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> http://groups.google.com/group/bankpensioner?hl=en-GB.
>

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[perumal maruthu]

Dear sir,

My reply is based on the Pension Scheme as applicable to non-Sbi Banks similar to RBI and Central Pension.

SBI Pension scheme is different. Other SBI Pensioners can throw more light on commutation.

M.Perumal

Canara bank Pensioner

Chennai

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[ashokdewani]

When an employee retires, he has " X " amount available in his pension fund. This " X " comprises of " Y " non-commutable amount and " Z " commutable amount. Mostly all find it benificial to take benifit of commutation, by availing the " Z " amount. O.K. then he gets Pension from the " Y " amount only. Now, people feel that if the Pensioner dies early, he is benifited. When, the employers foregoes " Z " amount and gives pension from " Y " amount only, I do not find dying early or late as benifitial. One has sold part of the Pension and encashed the money. But, why the Full Pension is restored after 15 years, when a part of the Pension was already sold ? My father got a commuted value of Rs. 77369 in 1993, in lieu of reduced Pension of Rs. 731. If I multiply 731 x 12 x 15, this works out to be Rs. 131580.

This means the reduced Pension has some hidden content of premium to be paid for 180 months for availing additional pension.

 

So, the question arises, whether the commutation works like a loan to be paid in 180 installments, EMI by way of reduced pension there is any silent premium being paid for 15 years to get the additional Pension, which is named as Restoration of Full Pension ?

 

I do not know whether I have been able to make my point very clear.

 

Thanks

 

Ashok Dewani 

 

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[Mohandas Rao]

Dear Sri Rajkumar Negi,

 

Commutation is paid as per Pension Regulation. It is similar to a loan so that a layman can understand it, if we put like that. But it is not a loan. Commutation amount is fixed taking into the account, the age of the pensioner as on the date of commutation. Commutation amount decreases if the age increases, taking into consideration of the risk factor.  In case of an unfortunate death of the pensioner, further instalments will not be claimed from the legal heirs/family pensioner. Thereafter full eligibility amount of family pension will be paid.

 

Please go through the Pension Regulation. Commutation is similar for bank employees, Central, Defence, Postal, Telecommunication, Railway or a State Government Pensioner.

 

MOHANDAS RAO K, SBM-SVRS 2001

[perumal maruthu]

Dear Mr AshokDewani,

why the Full Pension is restored after 15 years, when a part of the Pension was already sold ?

Pensioners are permitted to commute a portion of their Basic Pension linked to their age as per the Table.Commutation is neither a loan nor selling a part of your Basic Pension.

 

(1) The Table  indicates the commuted value of pension expressed as number of years’ purchase with
reference to the age of the pensioner as on his next birthday. The commuted value in the case of an
employee retiring at the age of fifty eight years is 10.46 years’ purchase and, therefore, if he commutes
rupees one hundred from his pension within one year of retirement, the lumpsum amount payable to him
works out of Rs.100X10.46X12 = Rs.12,552.
(2) An employee who had commuted the admissible portion of pension is entitled to have the commuted portion
of the pension restored after the expiry of a period of fifteen years from the date of commutation.
By giving in writing you can stop the enhanced pension due to restoration if you want. WOULD ANYONE THINK OF THIS?

3)My father got a commuted value of Rs. 77369 in 1993, in lieu of reduced Pension of Rs. 731. If I multiply 731 x 12 x 15, this works out to be Rs. 131580.

If you invest this amount in Bank FD (cumulative)@10%PA in 180 Months it will have a MV of Rs578925/

4)Hidden cost:

The load factor is determined @4.75%

5)Is it a LOAN?

Shri. Mohandas Rao has dealt with it in detail. IT IS NOT A LOAN

Commutation is linked to age factor and the fraction you want to commute.

M.Perumal

Chennai

 

From: ashokdewani <ashok...@gmail.com>
To: bankpe...@googlegroups.com
Sent: Tuesday, 10 April 2012 10:34 AM
Subject: Re: bankpensioner Commutation in Pension

[ashokdewani]

The person who had devised the system of commutation, must have taking in to account various aspects. It is evident that the Pension is always given from the Pension Fund generated in individual's account. Now, for those, who have retired at the age of 60 and have availed commutation benifit of say Rs. 6 Lac each, from where the Pension Fund gets generated after 15 years ? That is why I put up a question, why the full pension is restored after 15 years, when the pensioner has already availed a part of his pension fund amount. I am trying to understand the unseen factors in the commutation matter.

 

Rs. 77369 can not be Rs. 578925 @10 % interest compounded yearly. By commuting Rs. 77369, my father got 11.33 % less in his pension yearly. I feel that there is some hidden element of generating the Pension Fund after 15 years. I do not think that Govt. is losing money when the Pensioner dies. 

 

Anyway, you are well versed and much more experienced. I may be wrong also.

 

Ashok Dewani    

[perumal maruthu]

Dear sir,

I think you are mistaking Pension Fund is maintained like individual PF a/c.

Pension Fund is a common pool Fund; no necessity to maintain individual a/cs. Monthly Pension is paid out  of this and the Bank fills up the gap.

Restoration after15years:

You have not understood the concept of Commutation.

To help the Pensioner on his superannuation/exit to get some lump sum amount to meet Marriage/Educational expenses it was considered by the Central Gov't to extend the commutation benefit. It is not a loan but akin to a Reverse-LIC-Policy. Assured sum is recieved upfront but the premium is paid for the Fixed Term of 15Yrs.(In case of death ,in LIP, premium gets stoppped and the assured sum paid; here also the same gets stopped). It is linked to the Age also. Higher the age, lower the commutation factor and lower the commuted value.(In LIP lower the age,lower the premium).

I acknowledge that I have wrongly used the repayment figure for arriving at the MV of Cumulative FD for 15yrs.Rs77369/ in 15Yrs @10% can yeild MV of Rs340408. This is still  better than the 'interest' loss of Rs54211/

Status of Pension Fund after SVRS:

Every Svrs pensioner knows well what happened to the Bank's part of contribution to PF. In most cases the commutation was much higher than the value of PF and the Fund became suddenly a BLACKHOLE because of the exodus of 1.5Lac subscribers and the Banks are finding it difficult to feed it as the blackhole is activated on the power of inflation. This is the reason why you find a lot of distorted stories planted by a few disgruntled brains about Pension Fund/Funding gap.

[Pankaj Vithlani]

Dear Shri Perumal,

From your mail it is understtod that the SVRS Pensioners put the banks in some throuble. Is this the reason why the SVRS Pensioners are given step-motherly treatment ? This calculations should have been made by Banks before offering the Scheme. Now because they - banks - are facing crises, they can not do unjustice to this group.

 For the information of all, the SVRS Scheme was offerred to the employees of General Insurance Employees in Feb 2004. The wage revision of Gen. Ins. Employees was published in August 2004. when the wage was revised from August 2002. In Gazette it was very clearly mentioned that the benefit of the wage revision will not be given to the SVRS Optees. Though these employees were in Service from August 2002 to March 2004, no differrence of wage for these 19 months is given. They are now fighting the case in Supreme Court. - So the story is same everywhere - Pankaj Vithlani

Pankaj V Vithalani,
AHMEDABAD - 380015
Mob. 91 - 9825673520