Retirees looking for a regular income stream from their National Pension System (NPS) corpus now have a new option.
The Pension Fund Regulatory and Development Authority (PFRDA) has introduced the Retirement Income Scheme (RIS), a structured withdrawal facility designed to provide periodic payouts while keeping a portion of the retirement corpus invested.
The scheme seeks to address two common concerns in retirement planning: maintaining steady income and ensuring savings last over a long period.
Two payout options under RIS
PFRDA has introduced two variants of the scheme:
- Systematic Payout Rate (SPR)
- Systematic Unit Redemption (SUR)
Systematic Payout Rate (SPR)
SPR is the default option.
Under this method:
- Subscribers receive a fixed monthly amount.
- The number of units redeemed varies depending on market conditions.
For example, a retiree opting for a monthly payout of Rs 25,000 will continue to receive that amount regardless of whether markets are rising or falling.
This provides predictability and makes budgeting easier.
Systematic Unit Redemption (SUR)
SUR follows a different approach.
Under this option:
- A fixed number of units is redeemed every month.
- Monthly income varies with market movements.
Payouts rise when markets perform well and decline when markets are weak.
Which option suits whom?
According to Rahul Bhagat, Chief Executive Officer of DSP Pension Fund, SPR is suitable for retirees who depend on regular cash flows to meet fixed expenses.
“SPR is suitable for those who have fixed expenses, and need predictability. SUR is better for one with a financial cushion like a pension who can ride out market swings and wants to capture the upside when markets do well,” Bhagat said.
Age-based asset allocation
The Retirement Income Scheme incorporates a built-in glide path for investments.
Up to 80% of the corpus is moved into a dedicated retirement life-cycle fund.
Asset allocation changes automatically with age.
At age 60
- Equity: 35%
- Corporate bonds: 10%
- Government securities: 55%
By age 75
- Equity falls to 10%
- Corporate bonds rise to 15%
- Government securities increase to 75%
The portfolio is rebalanced annually.
The mandatory annuity requirement continues to remain between 20% and 40% of the corpus.
Why some equity exposure is retained
The scheme keeps part of the corpus invested in equities during the early years of retirement.
Over long periods, equities have historically helped counter inflation.
This gives the remaining corpus an opportunity to grow even while regular withdrawals are being made.
According to Vishwajeet Goel, Head of Pensionbazaar.com, the impact of prolonged market downturns is expected to be moderated because equity exposure declines with age.
“This conservative allocation helps protect retirement income while still maintaining some exposure to long-term growth,” Goel said.
RIS versus SWP
Retirees can also opt for a Systematic Withdrawal Plan (SWP) outside the NPS framework.
The choice depends largely on how much control an individual wants.
RIS
- Provides a structured withdrawal mechanism.
- Automatically adjusts asset allocation with age.
- Aims to reduce the risk of exhausting the corpus.
SWP
- Offers greater flexibility.
- Requires investors to manage withdrawals themselves.
According to experts, retirees who are comfortable managing their own finances may prefer SWPs. Those seeking a more automated approach may find RIS better suited to their needs.
TL;DR
PFRDA’s new Retirement Income Scheme offers two payout options under NPS — SPR for fixed monthly income and SUR for market-linked payouts. The scheme also automatically shifts investments towards safer assets as subscribers age, helping manage longevity and market risks.
AI summary
- PFRDA has launched the Retirement Income Scheme under NPS.
- Subscribers can choose between SPR and SUR payout options.
- SPR offers fixed monthly income, while SUR payouts vary with markets.
- Equity exposure gradually declines from 35% at age 60 to 10% at age 75.
- Experts say RIS may suit retirees seeking predictable cash flows.
