Daijiworld Media Network - New Delhi

New Delhi, May 18: The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a new post-retirement framework under the National Pension System (NPS), allowing subscribers to receive periodic payouts from their retirement corpus while keeping part of their savings invested for potential market-linked growth.

In a circular issued on May 15, the regulator launched Retirement Income Schemes (RIS) and new drawdown options aimed at improving cashflow predictability and extending the longevity of retirement savings.

Under the existing NPS structure, subscribers at retirement could withdraw up to 60 per cent of their corpus tax-free, while at least 40 per cent had to be used for purchasing an annuity. The remaining lump sum was generally withdrawn in one go.

With the new framework, retirees can now opt for phased withdrawals from the lump sum component, similar to a systematic withdrawal plan in mutual funds, while continuing to earn market-linked returns on the remaining corpus.

PFRDA clarified that the new drawdown facility will not affect the mandatory annuitisation requirement of 20 per cent or 40 per cent of the corpus under NPS.

The regulator, however, cautioned that there is no guarantee of fixed payouts since the retained corpus will continue to remain invested in market-linked instruments.

The newly introduced Retirement Income Scheme is a dedicated post-retirement investment option under NPS. Under this model, the remaining corpus after annuity purchase can stay invested instead of being withdrawn immediately.

According to PFRDA, the scheme aims to help retirees maintain inflation-adjusted cashflows and potentially earn better long-term returns during retirement.

The RIS will operate under an annual glide path model called “RIS Steady”, where equity exposure gradually reduces with age. The equity allocation will decline from 35 per cent at the age of 60 to 10 per cent by the age of 75 and remain at that level until 85 years.

The regulator said the glide path structure is intended to balance growth opportunities and investment risk during retirement years.

Subscribers opting for the drawdown facility can choose between two payout methods — Systematic Payout Rate (SPR) and Systematic Unit Redemption (SUR).

Under SPR, payouts will depend on the subscriber’s age and selected drawdown period. The payout percentage will change over time to ensure the corpus lasts throughout the chosen retirement duration.

Under SUR, a fixed number of units will be redeemed periodically. PFRDA illustrated that a subscriber retiring at 60 with a corpus of Rs 80 lakh and an NAV of Rs 10 would hold 8 lakh units. If the drawdown period is fixed at 25 years with monthly payouts, around 2,666.67 units would be redeemed every month.

The actual payout amount will vary depending on market movements and NAV fluctuations.

The regulator said the new framework is aimed at addressing concerns that retirees may either exhaust their retirement corpus too quickly or lock large sums into low-return annuity products.

Subscribers using the drawdown option can continue with their existing pension fund manager or switch once every two financial years.

The schemes will remain available until the subscriber reaches 85 years of age or any lower age selected at the time of exit from NPS.

With increasing life expectancy and rising retirement expenses, the latest move signals a shift towards a more structured and flexible retirement income model under the NPS.