Old Pension Scheme: Many states in India still follow the Old Pension Scheme (OPS). States such as Himachal Pradesh, Rajasthan, Chhattisgarh, and Punjab have recently reintroduced OPS. Central government employees who joined their service before January 1, 2004, also get their pension under OPS. The scheme offers pension on 10 years of completion of service. Unlike in National Pension System (NPS), OPS pensioners don’t need to contribute during their service years to generate their pension.

At the time of retirement, OPS pensioners can also commute up to 40 per cent of their pension amount.

When they do it, they get a lump sum amount.

But the pension amount decreases for 15 years.

After that, they get a full pension.

Know more about OPS and commutation of pension for central government employees and what the pension will be for an employee with a basic average pension of 75,000 at the time of retirement and 27 years of pensionable service.

How much lump sum amount will the employee get if they commute their 40 per cent pension, and what will be their reduced pension after commutation?

Who gets OPS pension?

A government employee is entitled to receive a pension on completion of at least 10 years of qualifying service.

If the service is less than that, they will get a lump sum amount, but they won’t get a monthly pension.

If the pensioner dies, their widow/family members get a reduced pension at 60 per cent of the full pension.

How OPS pension is calculated

The pension amount is calculated with reference to emoluments (last basic salary) or average emoluments (average of the basic salary drawn in the last 10 months of the service), whichever is more beneficial.

The pension amount is 50 per cent of the emoluments or average emoluments.

Minimum and maximum basic pension

In the 7th Pay Commission, the minimum basic pension is Rs 9,000, while the maximum is Rs 1,25,000.

What is OPS salary commutation?

A central government employee can opt for commuting a portion of the pension, which should not exceed 40 per cent of the full pension.

In lieu of that, the employee gets a lump sum amount, and their pension amount is reduced by 40 per cent.

The pension will be restored on the expiry of 15 years from the date of receipt of the commuted value of the pension.

However, when you commute your salary, your dearness relief (DR) will continue to be calculated on the basis of the original pension.

Formula to calculate commuted salary

Commuted value of Pension (CVP) = 40% (X) Commutation factor* (X) 12

Where the commutation factor is a reference to age next birthday on the date on which commutation becomes absolute as per the new table of the CCS (Commutation of Pension) Rules, 1981.

Monthly pension at Rs 75,000 average 10-month basic pay

Here we are taking the example of a central government employee who also gets 53 per cent DA over and above Rs 75,000.

So, their overall average salary will be Rs 1,14,750. The example is for an employee who will retire on March 31, 2025, after 27 years of service.

The estimated monthly pension will be Rs 57,375.

Monthly family pension amount at Rs 75,000 average 10-month basic pay

The estimated family pension will be Rs 34,425, while the enhanced family pension will be Rs 57,375.

Commuted pension amount at Rs 75,000 average 10-month basic pay

The estimated lump sum that the employee will get will be Rs 22,56,628.

Reduced pension amount after salary commutation 

The estimated reduced monthly pension will be Rs 34,425.