MORE FLEXIBILITY, MORE CONTROL: NEW NPS RETIREMENT INCOME SCHEME (RIS)

Until now, subscribers of the National Pension System (NPS) were allowed to withdraw up to 60% of their retirement corpus as a tax-free lump sum, while the remaining 40% had to be used to purchase an annuity that provided regular pension income. However, for non-government subscribers, the lump-sum withdrawal limit now stands at 80% of the corpus.

The Pension Fund Regulatory and Development Authority (PFRDA) has now introduced a new Retirement Income Scheme (RIS) along with flexible drawdown facilities, giving retirees greater control over how they access their retirement savings after exit from NPS.

What is the New Retirement Income Scheme (RIS)?

Under the new framework, retirees no longer need to withdraw the entire eligible lump sum at once. Instead, they can opt for phased withdrawals while the remaining corpus continues to stay invested, allowing it to potentially grow even after retirement.

Importantly, the new facility does not alter the mandatory annuitisation requirement of 20% or 40% of the corpus, depending on the subscriber category. This ensures that a minimum lifelong pension income remains intact through annuity purchase.

The new drawdown facility allows subscribers to receive payouts from the lump-sum portion of their corpus on a:

• Monthly basis
• Quarterly basis
• Half-yearly basis
• Annual basis

These payouts will be received alongside regular annuity income. The facility will be available to both government and non-government NPS subscribers and can continue until the age of 85, depending on the option selected at the time of exit.

Who Should Consider the New NPS Drawdown Options?

The new NPS drawdown framework may be suitable for retirees who:

• Are comfortable with market-linked investments
• Can tolerate short-term volatility
• Have additional retirement income sources
• Want greater control over their retirement corpus
• Seek income that can potentially grow over time

However, retirees who depend heavily on NPS for regular living expenses may prefer products that offer guaranteed income and greater stability.

RIS Steady Scheme: Gradually Lowering Risk with Age

PFRDA has introduced the RIS Steady Scheme, designed to provide retirement income while progressively reducing market risk as the subscriber ages.

The scheme follows a declining equity glide path:

Under this structure, equity exposure gradually falls from 35% at age 60 to 10% by age 75, while allocations to safer debt instruments increase.

Drawdown Options Under the New NPS Framework

At the time of NPS exit, subscribers must choose between two drawdown methods:

1. Systematic Payout Rate (SPR) - Default option
2. Systematic Unit Redemption (SUR) - Equal unit redemption method

If no option is selected, the account will automatically move to the SPR route.

1. Systematic Payout Rate (SPR)

Under SPR, annual withdrawals are linked to the subscriber's current age and chosen drawdown end age.

Formula

SPR = 1 ÷ (Drawdown End Age - Current Age)

Illustration (Assuming Drawdown Ends at Age 85)

As the remaining drawdown period shortens, the withdrawal rate increases.

The payout amount is recalculated every year based on:

• Prevailing corpus value
• Market performance
• Subscriber's current age
• Remaining drawdown period

Unlike annuities, SPR payouts are not guaranteed and remain subject to market risks.

However, the framework also creates the possibility of increasing retirement income over time if market performance remains favourable.

How Much Monthly Income Can a ₹1 Crore NPS Corpus Generate?

To understand the practical impact of the new framework, consider a retiree with an NPS corpus of ₹1 crore at age 60.

Assumptions

• ₹20 lakh (20%) used for annuity purchase
• Assumed annuity return: 6% annually
• Monthly annuity income: ₹10,000
• Remaining ₹80 lakh invested under RIS
• Drawdown through SPR method

Estimated Monthly Income Under SPR

These figures are only illustrative. Actual payouts will depend on:

• Market performance
• Corpus growth
• Withdrawal frequency
• Asset allocation
• Duration of drawdown

Poor market returns, especially during the early years of retirement, can negatively impact both corpus value and future income.

2. Systematic Unit Redemption (SUR)

Under SUR, the retirement corpus is redeemed through equal unit withdrawals over the chosen drawdown period.

Formula

Units Redeemed per Payout = Total Units at Start ÷ (Drawdown Period × Payout Frequency)

Illustration

Units Redeemed Per Month

8,00,000 ÷ (25 × 12) = 2,666.67 units per month

Thus, 2,666.67 units will be redeemed every month until the drawdown period ends.

The number of units is fixed, but the rupee value you receive each month depends on the prevailing NAV.

NPS RIS vs Mutual Fund SWPs

The new framework has naturally drawn comparisons with mutual fund Systematic Withdrawal Plans (SWPs), which are widely used for retirement income generation.

Experts believe the RIS framework strengthens NPS as a retirement-income product because it combines:

• Systematic withdrawals
• Low fund management costs
• Tax efficiency
• Long-term retirement-oriented structure

While mutual funds continue to offer greater liquidity and flexibility, NPS is increasingly emerging as a dedicated retirement platform that balances:

• Income generation
• Long-term wealth preservation
• Controlled market exposure

Ultimately, the choice between NPS drawdowns and mutual fund SWPs will depend on an individual's broader retirement strategy, risk appetite, and income needs.

HIGHLIGHTS OF NEW NPS WITHDRAWAL RULES

Recent updates by the Pension Fund Regulatory and Development Authority (PFRDA) have made NPS withdrawals more flexible for subscribers.

• Earlier, only 60% of the NPS corpus could be withdrawn at retirement, while 40% had to be used to buy an annuity. Under the revised rules, the mandatory annuity portion has been reduced to 20%, allowing up to 80% of the corpus to be withdrawn as a lump sum for corporate sector employees.
• If the total NPS corpus is ₹8 lakh or less, subscribers can now withdraw 100% of the corpus without purchasing an annuity. Earlier, this full withdrawal option was available only when the corpus was ₹2.5 lakh or less.
• If the accumulated corpus is between ₹8 lakh and ₹12 lakh, subscribers can withdraw up to ₹6 lakh as a lump sum, while the remaining amount must be used to purchase an annuity or for systematic withdrawals.
• For a corpus above ₹12 lakh, the 80:20 rule applies: up to 80% can be withdrawn as a lumpsum, and at least 20% must be invested in an annuity plan.
• The revised rules introduce a minimum lock-in period of 15 years. Subscribers can exit NPS after completing this period, upon reaching age 60, or at the time of retirement or superannuation, whichever occurs earlier.
• Earlier, subscribers could remain invested in NPS only until age 75. The new rules allow investors to remain invested and defer withdrawals until age 85, providing greater flexibility in retirement planning.
• Subscribers can withdraw their lump-sum portion gradually through systematic withdrawals rather than taking it all at once.
• Subscribers can withdraw their NPS corpus for the purchase/construction of a residential house.
• If a non-government NPS subscriber dies before exiting the scheme, the entire accumulated corpus is paid to the nominee or legal heir, without any mandatory annuity requirement.

Subscribers can now take loans against their NPS corpus from regulated lenders, within limits specified by PFRDA. This allows access to liquidity without withdrawing retirement savings.

NPS WITHDRAWAL RULES (NORMAL EXIT)

Normal exit from NPS occurs when a subscriber reaches age 60, completes 15 years of subscription, or attains superannuation, whichever occurs earlier.

Key NPS Withdrawal Rules at Normal Exit

• If the total NPS corpus is up to ₹8 lakh, the entire amount can be withdrawn as a lump sum.
• If the corpus is between ₹8 lakh and ₹12 lakh, up to ₹6 lakh can be withdrawn immediately. The remaining amount must either be used to purchase an annuity or withdrawn in a structured manner over at least 6 years.
• If the corpus exceeds ₹12 lakh, a mandatory portion must be invested in an annuity plan.
• Government sector subscribers must allocate at least 40% of the corpus towards annuity purchase.
• Non-government subscribers must invest a minimum of 20% in an annuity.
• The balance amount may be taken as a lump sum or through periodic payout options such as SUR.
• Subscribers can also choose SLW (Systematic Lump Sum Withdrawal) instead of withdrawing the entire amount at once.
• NPS investments can be continued until the age of 85 by deferring withdrawals.

NPS Partial Withdrawal Rules (Before Age 60)

• Partial withdrawals are permitted after completing 3 years in NPS.
• Subscribers can withdraw up to 25% of their own contributions, excluding employer contributions.
• Withdrawals are allowed only for specified purposes such as education, marriage, medical treatment, skill development, or starting a business.
• A maximum of four partial withdrawals is allowed during the entire NPS tenure.
• A minimum gap of four years must be maintained between two withdrawals from the same account.

Eligible Reasons for Partial Withdrawal

As per PFRDA guidelines, partial withdrawal from an NPS Tier I account is permitted for:

• Higher education of children
• Marriage of children
• Purchase or construction of a residential property in the subscriber's or spouse's name, provided the subscriber does not already own a house
• Treatment of critical illnesses for the subscriber, spouse, children, or dependent parents
• Medical and incidental expenses arising from disability or incapacity
• Skill development, re-skilling, or self-development activities approved by PFRDA
• Starting a venture or business permitted under PFRDA regulations

Examples of critical illnesses include cancer, kidney failure, organ transplant, major heart surgeries, stroke, coma, paralysis, and serious accidents.

NPS Tier II Account Withdrawal Rules

• Tier II accounts are voluntary savings accounts under NPS.
• There are no restrictions on withdrawals from Tier II accounts.
• Subscribers can withdraw any amount at any time.
• Unlike Tier I accounts, Tier II withdrawals are taxable and do not offer retirement-related tax benefits.

NPS Withdrawal in Case of Subscriber's Death

• In the event of the subscriber's death, the entire accumulated corpus is transferred to the nominee or legal heir.
• The nominee may withdraw the entire amount as a lump sum.
• Alternatively, the nominee can choose to purchase an annuity for regular pension income.
• Withdrawal conditions may vary depending on subscriber category and corpus size.

NPS Withdrawal Rules by Subscriber Type

Corporate Sector Employees - Retirement

• If the corpus is up to ₹8 lakh, the entire amount can be withdrawn as a lump sum.
• If the corpus is between ₹8 lakh and ₹12 lakh, ₹6 lakh can be withdrawn immediately, while the remaining amount must be used for annuity purchase or structured withdrawals over at least 6 years.
• If the corpus exceeds ₹12 lakh, up to 80% can be withdrawn as a lump sum, while the remaining 20% must be invested in an annuity plan.

Corporate Sector Employees - Early Retirement

• In case of early retirement, at least 80% of the accumulated corpus must be invested in annuity plans.
• The remaining 20% can be withdrawn as a lump sum or through SLW/SUR payouts.
• If the corpus is up to ₹5 lakh, the entire amount can be withdrawn.

Corporate Sector Employees - Death of Subscriber

• In the event of the subscriber's death, the entire corpus is paid to the nominee or legal heir.
• The nominee may also choose to purchase an annuity plan.

Government Employees - Retirement

• Government employees can withdraw the full corpus if it is up to ₹8 lakh.
• If the corpus ranges between ₹8 lakh and ₹12 lakh, ₹6 lakh may be withdrawn immediately, while the balance must be used for annuity purchase or structured withdrawals over at least 6 years.
• If the corpus exceeds ₹12 lakh, up to 60% can be withdrawn as a lump sum, while at least 40% must be invested in an annuity plan.

Government Employees - Early Retirement

• Government employees opting for voluntary retirement must invest at least 80% of the corpus in annuity plans.
• If the corpus is up to ₹5 lakh, the entire amount can be withdrawn.

Government Employees - Death of Subscriber

• If the subscriber dies and the corpus is up to ₹8 lakh, the full amount is paid to the nominee or legal heir as a lump sum. Periodic payout options are also available.
• If the corpus is between ₹8 lakh and ₹12 lakh, ₹6 lakh can be withdrawn immediately or through periodic payouts, while the remaining amount must be paid periodically for at least 6 years.
• If the corpus exceeds ₹12 lakh, 80% must be used to purchase a default annuity plan, while the remaining 20% is paid as a lump sum to the nominee or legal heir.
• If no dependent family member survives, the corpus is transferred to the surviving children. In the absence of children, it is paid to the legal heirs.

Time Periods for NPS Withdrawals

On Maturity

• Subscribers can withdraw from the Tier I account upon reaching 60 years of age or the superannuation age.

Premature Exit

• Premature exit is allowed only after completing at least 5 years in NPS.
• While contributions may stop earlier, only 20% of the corpus can be withdrawn, and the balance 80% must be used for annuity purchase.

Partial Withdrawal

• Partial withdrawals are permitted after 3 years of investment in NPS Tier I.
• Up to three partial withdrawals are generally allowed.
• A minimum gap of 5 years must be maintained between successive withdrawals.

CONCLUSION

The introduction of the Retirement Income Scheme (RIS) and flexible drawdown options marks a significant evolution in the National Pension System (NPS). By allowing phased withdrawals, extending the investment horizon up to age 85, and reducing the mandatory annuity requirement for non-government subscribers, PFRDA has made NPS more adaptable to the diverse retirement needs of modern investors.

The new framework offers retirees greater flexibility, liquidity, and control over their retirement corpus while still ensuring a minimum level of lifelong pension through mandatory annuitisation. Features such as Systematic Payout Rate (SPR), Systematic Unit Redemption (SUR), and the RIS Steady Scheme provide multiple ways to balance income generation, market participation, and risk management during retirement.

At the same time, these options require careful planning. Since withdrawals remain market-linked, retirees must evaluate their risk appetite, financial discipline, and dependence on retirement income before choosing a drawdown strategy. Investors seeking stable and guaranteed income may still prefer higher annuity exposure, whereas those comfortable with market fluctuations may benefit from the long-term growth potential offered by RIS.

Overall, the revised NPS withdrawal and retirement income framework strengthens NPS as a comprehensive retirement solution by combining flexibility, tax efficiency, low-cost investing, and structured retirement income planning under one platform.