The Pension Fund Regulatory and Development Authority (PFRDA) has introduced new retirement income schemes and drawdown options under the National Pension System (NPS).
The new changes are aimed at giving subscribers more flexibility after retirement.
Instead of locking a large part of their savings into annuity plans immediately, retirees will now be able to withdraw money gradually while keeping part of their pension corpus invested for future growth.
The move is expected to help both government and private sector NPS subscribers manage their retirement income more comfortably.
How the New NPS Retirement System Will Work
Under the new Retirement Income Scheme (RIS), subscribers can choose phased withdrawals from their pension corpus after retirement.
Importantly, the new system does not affect the mandatory annuity rules under NPS.
Currently:
Government subscribers must use at least 40% of the corpus to buy annuity plans
Some categories require a minimum 20% annuitisation
The remaining amount can now be withdrawn in a more flexible manner through periodic payouts.
Subscribers can choose to receive payouts:
Monthly
Quarterly
Annually
The payout option can continue up to the age of 85 years or as selected by the subscriber while exiting the NPS.
New Drawdown Options Introduced
PFRDA has introduced two payout methods under the new system.
Systematic Payout Rate (SPR)
This will be the default option.
Under SPR, subscribers receive regular payouts while the remaining corpus continues to stay invested.
Systematic Unit Redemption (SUR)
In this option, units are redeemed equally over time to provide regular income.
Subscribers must choose their preferred drawdown option at the time of closing their pension account. Once selected, fresh contributions to the account will stop.
Equity Exposure Will Reduce Gradually
To reduce investment risk as subscribers age, the equity exposure under RIS will slowly decrease over time.
According to PFRDA:
Equity allocation will reduce from 35% at age 60
It will gradually fall to 10% by age 75
After that, it will remain fixed until age 85
This strategy is designed to balance stability and growth during retirement years.
What Happens if a Subscriber Passes Away?
If a subscriber dies during the payout period, the remaining balance in the account will be transferred according to PFRDA rules after adjusting scheduled payouts already made.
In some cases, money may still remain in the account at the end of the drawdown period.
Subscribers will then have two choices:
Withdraw the remaining amount as a lump sum
Use the leftover corpus to purchase an annuity plan
Why This Change Matters
The new NPS retirement options are designed to provide retirees with more control over their money after retirement.
Instead of depending entirely on annuity products, subscribers can now create a more flexible income stream while allowing part of their savings to continue growing.
The changes also aim to make retirement planning under NPS more practical for modern investors looking for both regular income and long-term financial security.
