How to Calculate Pension and Commute? | Pension Calculator Formula

If you’re checking how to calculate pension and commute, the process typically involves using the formula: “Last Pay Drawn x (Years of Service / 300) x Applicable Pension Factor” to calculate your pension. To determine your commutation amount, this is based on your age and a commutation table provided by your pension provider, which calculates a percentage of your gross pension. Essentially, a lump sum payment is exchanged for a reduced future pension payment when you commute your pension. This method ensures you understand how to calculate pension and commute effectively.

Calculation of Pension

It is very simple to calculate Pension and Commute. Employees have the option of calculating their pension and commuting themselves. The main factors in calculating pensions are basic pay and total service. Here is the formula for calculating pensions:

Gross Pension = Basic Pay x Service (Maximum 30 years) x 70/3000

Example 1: Ali (Age: 60)

Assumptions:

• Basic Pay: 5000 USD
• Years of Service: 25 years

Gross Pension Calculation:
Gross Pension = 5000 x 25 x 70 / 3000
Gross Pension = 291.67 USD per month

Converted Gross Pension to PKR:
291.67 USD × 280 = 81,667.60 PKR per month

Commutation Calculation:
Assuming Ali can commute 40% of his gross pension.
Commuted Lump Sum = 40% of 81,667.60 PKR = 32,667.04 PKR

Example 2: Asad (Age: 70)

Assumptions:

• Basic Pay: 5000 USD
• Years of Service: 30 years

Gross Pension Calculation:
Gross Pension = 5000 x 30 x 70 / 3000
Gross Pension = 350.00 USD per month

Converted Gross Pension to PKR:
350 USD × 280 = 98,000 PKR per month

Commutation Calculation:
Assuming Asad can commute 60% of his gross pension.
Commuted Lump Sum = 60% of 98,000 PKR = 58,800 PKR

What is Basic Pay

Basic Pay refers to the salary an employee receives before any allowances, bonuses, or additional payments are added. For the purpose of pension calculations, it is the amount that is used to determine the pension benefits.

Here’s how Basic Pay is typically calculated at the time of retirement:

1. Usual Increment: If an employee retires on or after June 1st, a 1x usual increment is added to their basic pay. This ensures that the employee’s salary reflects the increment they would have received if they continued working for the full year.
2. Personal Pay (PP): If the employee is receiving Personal Pay at the time of retirement, this amount is added to their basic pay for pension calculation. Personal Pay is often granted in special cases, like when an employee’s salary has been adjusted due to certain circumstances, but it is treated as part of their salary for pension purposes.
3. Special Pay: If the employee is receiving Special Pay, which is an additional amount granted for specific tasks, responsibilities, or circumstances, it is also included in the basic pay for pension calculation. Special Pay can be given for reasons like additional duties, or higher qualifications, and it becomes a part of the retirement pay.

Example:

Let’s assume an employee is retiring with the following:

• Basic Pay at retirement: 50,000 PKR
• Usual Increment: 1x usual increment (5,000 PKR)
• Personal Pay: 2,000 PKR
• Special Pay: 3,000 PKR

Final Basic Pay for Pension Calculation = 50,000 PKR + 5,000 PKR + 2,000 PKR + 3,000 PKR = 60,000 PKR

Calculation of Commute

Commute = 35 % of Gross Pension x 12 x Age Rate

Example 1: Ali (Age: 60)

Assumptions:

• Gross Pension: 81,667.60 PKR (as calculated earlier)
• Age Rate: 0.15 (since Ali is 60)

Commute Calculation:
Commute = 35% of 81,667.60 PKR x 12 x 0.15
Commute = 0.35 x 81,667.60 PKR x 12 x 0.15
Commute = 34,833.18 PKR x 0.15
Commute = 5,224.98 PKR

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Example 2: Asad (Age: 70)

Assumptions:

• Gross Pension: 98,000 PKR (as calculated earlier)
• Age Rate: 0.25 (since Asad is 70)

Commute Calculation:
Commute = 35% of 98,000 PKR x 12 x 0.25
Commute = 0.35 x 98,000 PKR x 12 x 0.25
Commute = 34,500 PKR x 0.25
Commute = 8,625 PKR

Age Rates

Age rates according to the Revised Pay Scale 2001 are as under:

Age Next Birthday	No. of Years Purchased
20	40.5043
21	39.7341
22	38.9653
23	38.1974
24	37.4307
25	36.6651
26	35.9006
27	35.1372
28	34.3750
29	33.6143
30	32.8071
31	32.0974
32	31.3412
33	30.5869
34	29.8343
35	29.0841
36	28.3362
37	27.5908
38	26.8482
39	26.1009
40	25.3728
41	24.6406
42	23.9126
43	23.1840
44	22.4713
45	21.7592
46	21.0538
47	20.3555
48	19.6653
49	18.9841
50	18.3129
51	17.6526
52	17.0050
53	16.3710
54	15.7517
55	15.1478
56	14.5602
57	13.9888
58	13.4340
59	12.8953
60	12.3719
61	11.8632
62	11.3684
63	10.8872
64	10.4191
65	09.9639
66	09.5214
67	09.0914
68	08.6742
69	08.2697
70	07.8778
71	07.4983
72	07.1314
73	06.7766
74	06.4342
75	06.1039
76	05.7858
77	05.4797
78	05.1854
79	04.9030
80	04.6321

How to Calculate Pension In-Service Death (Family Pension)

Step	Description	Formula	Example Calculation
Step 1	Calculate Gross Pension	Gross Pension = Last Pay Drawn × 7/300 × Length of Service	Example: Last Pay Drawn = 50,000 PKR, Length of Service = 30 years Gross Pension = 50,000 × 7/300 × 30 = 350,000 PKR
Step 2	Calculate Gratuity	Gratuity = Gross Pension × 1/4 × 12 × (Index from Commutation Table based on deceased’s age)	Example: Gross Pension = 350,000 PKR, Age of Deceased = 60 years, Age Index = 0.15 Gratuity = 350,000 × 1/4 × 12 × 0.15 = 1,260,000 PKR
Step 3	Calculate Monthly Family Pension	Monthly Family Pension = Gross Pension × 75%	Example: Gross Pension = 350,000 PKR Monthly Family Pension = 350,000 × 0.75 = 262,500 PKR
Additional Considerations	Include admissible increases and medical allowances as applicable based on time and policy changes	Add applicable increases and medical allowances to family pension calculation as per government rules	Example: Monthly Family Pension (after increase) = 262,500 PKR + medical allowance + any applicable increase

How to Calculate the Pension of Retiring Person

Step	Description	Formula	Example Calculation
Step 1	Calculate Gross Pension	Gross Pension = Last Pay Drawn × 7/300 × Length of Service	Example: Last Pay Drawn = 50,000 PKR, Length of Service = 30 years Gross Pension = 50,000 × 7/300 × 30 = 350,000 PKR
Step 2	Calculate Commutation	Commutation = 35% of Gross Pension × 12 × Index from Commutation (based on age at next birthday)	Example: Gross Pension = 350,000 PKR, Age at Next Birthday = 60, Index = 0.15 Commutation = 35% × 350,000 × 12 × 0.15 = 1,260,000 PKR
Step 3	Calculate Monthly Pension	Net Pension = 65% of Gross Pension	Example: Gross Pension = 350,000 PKR Net Pension = 350,000 × 0.65 = 227,500 PKR
Additional Considerations	Include admissible increases and medical allowances over time	Add applicable increases and medical allowances to monthly pension as per government policies	Example: Monthly Pension (after increases) = 227,500 PKR + medical allowance + applicable increases as per policy

Pension Calculator to Calculate Pension & Commute Since 1978

1. Input:
   • Basic Pay
   • Length of Service
   • Age
2. Automatic Calculation:
   • The Gross Pension is calculated using the formula.
   • The Commuted Lump Sum is calculated based on 35% of the Gross Pension and the Age Index (according to the age category).
   • The Net Monthly Pension is calculated as 65% of Gross Pension.
   • Total Monthly Pension includes any applicable allowances and medical allowance.

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