Restoration of commuted amount of pension after 10 years instead of 15 years

Shok Haran Prasad Singh Joint Convener General Secretary, AIPNBPRA Email: shokharan@gmail.com Mobile No: 9471000067

M.R. Gochhwal Joint Convener General Secretary, AIPNBROA Email: mrgochhwal@yahoo.com Mobile No: 9312330990

Letter No: AIPNBPRA/362/CORD/02/2024

Patna 03.06.2024

The Managing Director & CEO Punjab National Bank, Corporate Office Plot No. 4 Sector 10, Dwarka, New Delhi 110075.

Dear Sir,

Reg: Restoration of commuted amount of pension after 10 years instead of 15 years. Hon'ble Punjab & Haryana High Court on 31.05.2024 stayed recovery after 10 years in some cases of retired employees of Union bank of India.

We would like to bring the following facts to your kind notice with regard to Restoration of commuted amount of pension after 10 years for your consideration please:-

As per extant Pension Regulations 1995, commuted pension is restored after 15 years from the date of drawl of the commuted amount. This period of 15 years is arbitrarily fixed, without any legal or mathematical basis. This amounts to an unjust and immoral enrichment of the Government/ Banks at the cost of the pensioners/ senior citizens. This affects all the retirees, irrespective of the rank/ level of the pensioner. What right/ justification has the Banks/Government got to overcharge the pensioners and recover even a penny more than what it has paid as is evident from the following presentation:-

• A.
  The main reason projected by the Government for excess recovery is the 'mortality risk factor' as the balance recovery is waived in case of death. The hard fact remains that commuted pension is like any other advance/ loan on which the Banks charge interest at 4.75%.pa. Banks are continuously recovering commuted amount for 15 years, though it recovers the full amount with interest in 9 years & 10 months.
• B.
  In this connection following extract of Hon'ble SC Judgement dated 9.12.86 Common Cause Vs .UOI in Writ petition No.3958-61 of 1983 under Article 32 of the Constitution of India is relevant:

  "In dealing with a matter of this nature, it is not appropriate to be guided by the example of Life Insurance; equally unjust it would be to adopt the interest basis. On the other hand, the conclusion should be evolved by relating it to the 'years of purchase' basis. An addition of two years to the period necessary for the recovery on the basis of years of purchase……. ."

This judgement has three inferences:-

• a)
  No link of the concept of commutation can be made to life insurance. This demolishes the official stand that an element of insurance/ risk is made into the concept of commutation.
• b)
  The period of recovery for interest cannot exceed 2 years after the recovery of the principal amount on the basis of years of purchase:
• c)
  A perusal of the judgement shows that 15 years is the upper limit while there is no lower threshold fixed. No bar has been placed by the Court on its reduction which can always be done in view of the changed circumstances like higher life expectancy, lower risk factor, revised commutation table, reduced commutation factor, increased interest rate, higher age of retirement and the changed scenario after the 4th, 5th and 6th Central Pay Commissions.

The 5th Central Pay Commission, in Chapter 136, had specifically recommended reduction of the period of recovery to 12 years. The Commission had observed that the commuted value of pension receivable currently by an employee retiring at the normal age of 58 years was equal to 10.46 years' purchase. It was, however, separately recommended that the age of superannuation be raised from 58 years to 60 years. Consequently, the commutation value in respect of employees superannuating at the age of 60 years and commuting a portion of pension within a period of one year would be equal to 9.81 years' purchase. After adding thereto a further period of 2 years for recovery of interest in terms of the observation of the Supreme court, it was felt reasonable to recommend restoration of the commuted pension after 12 years.

• (i)
  Convenience of lump sum payment to pensioners and,
• (ii)
  Mortality risk factor.

• (i)
  Convenience of lump sum payment to pensioners

This provision was formulated in 1995 when the interest on deposits were very high. Thereafter the interest rates have fallen drastically and the present interest on deposits is nearly half of the interest rate prevailed during that period, pushing the retired employees into a very miserable and pathetic financial condition. Commutation of pension in the present scenario will be a great loss to the retirees. Due to the fall in interest rates, depreciation in the value of money, escalation in cost of living, ever increasing medical expenses, etc. the retirees are finding it very difficult to make both ends meet. It is needless to say that the provision of "15 years" period for restoration of full pension formulated 29 years ago deserves a positive review in the light of the present economic scenario.

(ii) Mortality risk factor.

It is almost 38 years since the SC judgement was delivered. While much water has flown down the Ganges since then, several factors and circumstances, which were relied upon by the Apex Court have undergone a sea change as elaborated in the analysis below:-

• a.
  In 1986, when the Supreme Court judgement was delivered, life expectancy in India was only 57 years while the retirement age was higher than this (58 years). In 38 years after the judgement, there is a sharp upsurge in life expectancy & retirement age is 60 years. This has reduced the projected risk factor (of non-recovery and waiver due to premature mortality) to almost zero. This factor alone demolishes the Government's constant bogey of mortality risk factor.
• b.
  Even if a pensioner dies at the average life expectancy age and the unrecovered commuted amount stands waived off, the Government/Bank is not a loser at all. The reason is that the family pension, which remains 100% only up to 7 years after retirement, i.e. up to the deceased's presumed age of 67 years is reduced thereafter by 40% after the death of the pensioner. This drop is more than the current commuted portion which is 33% of the basic pension. Thus, in the changed scenario, virtually no risk factor exists. `
• c.
  In the following paragraphs we will mathematically and legally prove how the pensioners are being fleeced. The calculations, made on the basis of one particular pay, are only illustrative but the principle/ method applies equally to all the ranks, leading to exactly similar results:

  • (i)
    As per Pension Regulations, the Commutation Factor (CF) is 9.81 at the age of 60 years and the rate of interest is 4.75% p.a. Commutation allowed is 1/3rd of the basic pay.
  • (ii)
    The basic pension of Mr X…….. who superannuated at the top of his pay scale at Rs.24,140/ was fixed at Rs.12,070/ and he got pension of Rs.8,047 after commutation with a deduction of Rs.4023 per month. The principal amount of commutation Rs.3,78,162/ (on the basis of 66 years age, although retired in 2003 & commutation amount was given in 2009) was fully recovered in 7.85 years and interest in two years i.e. total 9.85 years as per Supreme Court Judgement quoted above..."

    Thus Mr X will be asked to pay 180-118=62 months x4023 =Rs.2,49,426 more.

On the basis of above calculations, it is not justified on the part of Government/Banks to continue the recovery even after recovering the entire principal amount as well as interest thereon.

• E.
  State Government of Gujarat has already restored the commuted value of Pension after 13 years.

"While we have passed the said interim order in several cases restraining the respondents from making any recovery, it is clarified that the same would be a direction in cases where the concerned petitioner has completed 10 years of retirement or above."

In view of above calculations, Supreme Court observations, High Court Orders, we request you to kindly review earlier decision and restore full amount of pension after 10 years.

Sd/-

(Shok Haran Prasad Singh) Joint Convener & General Secretary, AIPNBPRA

Sd/­(M.R. Gochhwal) Joint Convener & General Secretary, AIPNBROA

CC to Secretary, Department of Financial Services, Banking Division, Government of India: For information and necessary action

(Shok Haran Prasad Singh) Joint Convener & General Secretary, AIPNBPRA

(M.R. Gochhwal) Joint Convener & General Secretary, AIPNBROA