A commutation of pension refers to the exchange of part or all of the pension payable from retirement for an immediate lump sum. The lump sum payment is calculated based on the commuted value of the pension, which represents the sum of money that a beneficiary is entitled to receive as a lump sum payment at retirement through a pension plan. The commuted value is estimated based on factors such as the future life expectancy of the beneficiary, long-term interest rates, and the life expectancy of the beneficiaries based on mortality tables. Pension fund managers must calculate the commuted value to determine their payout obligations and reserve requirements. Employees have the option of taking their pensions in monthly payments or as a lump sum payout. Commuting a pension can help individuals deal with urgent financial obligations, but it may leave them with certain tax liabilities, especially if they do so early. The taxability of commuted pension amounts can vary depending on the nature of the employment. The commuted value of a pension plan can be calculated by determining the lump sum present value of the pension that the beneficiary would otherwise receive as a monthly payment for their lifetime upon retirement.