Retiring soon? Check new NPS pension income options, RIS benefits and key withdrawal rules

The Pension Fund Regulatory and Development Authority (PFRDA) has launched new Retirement Income Schemes (RIS) and flexible drawdown options under the National Pension System (NPS). These changes aim to help retirees get more stable cash flow after retirement while keeping their pension savings invested for longer growth. The move gives NPS subscribers more flexibility in managing their retirement income without fully withdrawing their corpus at once.

Earlier, NPS subscribers could withdraw up to 60% of their corpus tax-free while at least 40% had to be used to buy an annuity for regular pension income. Now, retirees can also choose periodic withdrawals from their lump-sum corpus through new drawdown options. This allows pensioners to receive additional monthly, quarterly, or yearly payouts alongside their mandatory annuity pension.

The new Retirement Income Scheme allows retirees to withdraw their NPS corpus gradually instead of taking a large lump sum immediately after retirement. The remaining amount stays invested in the market, helping the corpus potentially grow further during retirement years. However, the mandatory annuity purchase requirement remains unchanged, ensuring subscribers continue receiving lifelong pension benefits through annuity plans.

Under the RIS Steady option, equity exposure in the retirement corpus will gradually reduce with age. Equity allocation will fall from 35% at age 60 to 10% by age 75 and remain at that level until age 85. This “glide path” approach aims to balance growth and safety by reducing market risk as retirees grow older while still maintaining some equity participation.

Subscribers opting for drawdown facilities can choose how often they want payouts from their NPS corpus. Options include monthly, quarterly, or annual withdrawals. The payout period can continue up to 85 years of age or as selected during NPS exit. This gives retirees more control over their post-retirement income and helps manage regular expenses more efficiently after leaving active employment.

PFRDA has introduced two payout methods for drawdown withdrawals. The first is the Systematic Payout Rate (SPR), which will be the default option. The second is Systematic Unit Redemption (SUR), where a fixed number of units are redeemed periodically. Both methods are designed to provide structured withdrawals while keeping the remaining retirement corpus invested for possible long-term growth.

Yes, subscribers using the new drawdown options can continue with their existing pension fund manager or switch to another one. PFRDA has allowed retirees to change their pension fund once every two financial years. This flexibility allows pensioners to review fund performance and move to better-performing pension managers if needed during their retirement years.

PFRDA explained SUR using an example of a retiree with an Rs 80 lakh corpus and 8 lakh units at a NAV of Rs 10. If the subscriber chooses a 25-year drawdown period with monthly payouts, nearly 2,666 units would be redeemed every month. The payout amount may vary depending on market-linked NAV movements over time.

While the new RIS and drawdown options can improve retirement cash flow flexibility, PFRDA has clearly stated that payouts are not guaranteed. Returns and withdrawal values will depend on market performance since the corpus remains invested. This means retirees may benefit from higher growth during good markets but could also face lower payouts during periods of market volatility or weak returns.