The Pension Fund Regulatory and Development Authority (PFRDA) has brought a major change in the way you can withdraw money from your National Pension System (NPS) account after retirement.
These updates introduce Retirement Income Schemes (RIS) and flexible Drawdown options. Essentially, these options give retirees a way to get a steady, predictable monthly income from their accumulated savings. You don’t have to withdraw a huge lump sum the moment you retire.
Let’s break down exactly how this works, what your options are, and why it changes the game for retirement planning in India.
The Big Shift: From Lump Sum to Smart Cash Flow
To understand why this is a big deal, look at how NPS traditionally worked at retirement (age 60):
- The Annuity Part (Mandatory): You have to use at least 40% of your total corpus to buy an annuity, which provides you with a lifelong monthly pension.
- The Lump Sum Part: You were allowed to withdraw the remaining 60% as a tax-free lump sum.
The problem? Once you withdrew that 60%, it stopped growing inside the low-cost, tax-efficient NPS ecosystem. If you didn’t have an immediate need for a huge pile of cash, you had to find other places to invest it.
With the new rules, that mandatory annuity rule does not change. You still buy your pension with 40% of the corpus. However, instead of taking the remaining 60% as a lump sum all at once, you can leave it invested in NPS and draw it out slowly over time—similar to a Mutual Fund Systematic Withdrawal Plan (SWP).
What is a Retirement Income Scheme (RIS)?
When you choose to phase out your withdrawals, your remaining money doesn’t just sit idle. It stays invested under the RIS framework to ensure your money keeps pacing with inflation.
The primary option introduced is RIS Steady. It acts as a safety-focused investment plan that automatically shifts your money away from stocks as you age to protect your retirement fund.
The RIS Steady “Glide Path”
The investment automatically rebalances your portfolio across Asset Classes E (Equity), C (Corporate Bonds), and G (Government Securities) on a declining scale:
| Age Group | Equity (E) | Corporate Bonds (C) | Government Bonds (G) |
| At Age 60 | 35% | 10% | 55% |
| Gradual Shift | Decreases yearly | Adjusts yearly | Increases yearly |
| By Age 75 to 85 | 10% | 15% | 75% |
Why this matters: Keeping 35% in equity at age 60 gives your retirement pool enough growth potential to beat inflation. Automatically lowering it to 10% by age 75 ensures that market crashes won’t wipe out your daily living expenses when you are older.
The Two Drawdown Methods Explained
You can choose how your periodic payouts (monthly, quarterly, or annually) are calculated up to the age of 85. There are two primary methods to do this:
1. Systematic Payout Rate (SPR) – The Default Option
Under this option, your payout rate is calculated mathematically based on how long you want the money to last.
The Formula:
How it works: If you exit NPS at age 65, the calculation is 1 / (85 – 65) = 1 / 20, which equals a 5% payout of your corpus in that year. If you are 70, it becomes 1 / (85 – 70) = 1 / 15, or roughly 6.67%.
The Catch: Your payout amount is recalculated every year on your birthday based on the current market value of your remaining corpus. Because it depends on market values, there is no fixed or guaranteed payout amount. If there is any residual corpus left at age 85, you can take it as a lump sum or add it to your annuity.
2. Systematic Unit Redemption (SUR) – The Equal Units Option
Instead of calculating a percentage of the cash value, this option focuses entirely on the mutual fund units you hold.
- How it works: The system takes the total number of units you own on day one of retirement and divides them equally across your entire payout timeline.
- Example: If you have 1,00,000 units left and want monthly payouts over 20 years (240 months), the system will strictly sell 1,00,000 / 240 = 416.67 units every single month.
- The Catch: Because the Net Asset Value (NAV) of those units changes daily with the market, your monthly bank credit will fluctuate. If the market is up, your payout is higher; if the market is down, your payout is lower.
Key Rules to Keep in Mind
- Availability: These features are available to both Government and Non-Government (Corporate/All Citizen) subscribers.
- Flexibility: You can keep your existing Pension Fund Manager (PFM) or switch to a new one once every two financial years if you aren’t happy with the returns.
- Stopping Contributions: Once you opt for a drawdown plan at exit, your account transitions completely into the payout phase—meaning you cannot make fresh investment contributions into that account.
Ultimately, these changes make the NPS look much more like a complete, self-sustaining retirement machine. It takes care of growth while you work and handles smooth, automated budgeting once you stop.
