RetirementFinancial Glossary
Commutation
Definition
The option to convert a portion of your pension into a lump-sum payment at retirement, forgoing that portion of future regular pension payments. Under government pension rules and NPS, you can typically commute up to 60% of the pension corpus as a tax-free lump sum.
Why It Matters
Commutation gives you immediate access to a large sum at retirement for needs like paying off a home loan, medical expenses, or gifting children. However, the commuted amount is permanently removed from your pension base, reducing your monthly income for life. The decision involves balancing immediate needs against long-term income security.