The Pension Fund Regulatory and Development Authority (PFRDA) has introduced the Retirement Income Scheme (RIS), providing National Pension System (NPS) subscribers with two flexible periodic payout options on exit. Under the new scheme, subscribers can keep 60% or 80% of the withdrawable corpus in NPS from the age of exit at 60 until age 85 and earn periodic payouts. The amount will be invested in a new life cycle scheme, RIS Steady, which employs a continuously declining, or annual glide path that reduces equity exposure from 35% at age 60 to 10% at age 75. This framework addresses a long-standing concern among subscribers about the lack of flexibility between compulsory annuity purchases and managing large lump sums independently after retirement.
The Systematic Unit Redemption (SUR) option allows subscribers to withdraw an equal number of units every month until age 85. For a ₹1 crore corpus with NAV of ₹10, total units would be 10,00,000. With a drawdown period of 25 years and monthly payout frequency, the number of units per month would be 3,333 units. However, the NAV cannot be predicted in advance and may vary based on fund performance during the investment period. Under the new framework, retirees can redeem a fixed number of units each month, such as 2,666 units for an ₹80 lakh corpus with a ₹10 NAV over a 25-year payout period.
The Systematic Payout Rate (SPR) is the default drawdown option under RIS, with systematic payouts calculated using the formula SPR = 1 ÷ (85 − current age). The SPR is locked for 12 months and applies to the corpus value on the subscriber's birthday, with systematic payouts reset on every birthday. For a subscriber exiting at age 60, the starting SPR of 4% would pay ₹33,333 per month. The payout rate increases significantly with age, reaching ₹100,000 per month at age 84 and ₹100,000 per month at age 85. Under the new structure, the payout rate works out to approximately 4% annually at age 60, rising to 20% at age 80, with recalculations based on the retiree's age and prevailing corpus value.
Under the prevailing annuity option, a ₹1 crore corpus with an annuity rate of 6.5% per year would provide ₹54,166 per month until age 85. In contrast, the starting SPR of 4% under RIS would initially pay ₹33,333 per month. However, RIS offers advantages over annuities as the remaining corpus continues to earn returns, potentially increasing monthly payouts significantly. For example, if the pension fund performs well and the corpus remains at ₹1 crore at age 75 when SPR reaches 10%, monthly payout could increase to ₹83,333. The new framework also addresses concerns about traditional annuities, which typically generated pension income of around ₹18,000–22,000 per month from a ₹40 lakh annuity purchase and remained locked with little opportunity for future growth.
Under both SPR and SUR options, subscribers are not allowed to resume NPS contributions after starting the drawdown. The corpus will end at age 85, and if subscribers live beyond this age, RIS will not provide assistance. Additionally, the monthly payout under RIS is not fixed like an annuity plan and depends on the value of the corpus, which is exposed to market risks and uncertain returns. This may not suit subscribers who prefer guaranteed income during retirement. The new drawdown mechanism does not replace the mandatory annuity requirement under NPS, with the compulsory annuity allocation of 20% or 40% depending on applicable rules remaining unchanged, applying only to a separately designated portion of the retirement corpus.
