New NPS Retirement Income Scheme Offers Flexibility and Growth Potential

Retirees now have a new way to manage their National Pension System (NPS) corpus, offering flexibility and potential for growth.

The Retirement Income Scheme (RIS) allows keeping savings invested post-retirement, generating regular income through Systematic Payout Rate (SPR) or Systematic Unit Redemption (SUR) options. This approach balances market exposure with risk management, aiming for sustainable income over long retirements.

After years of saving up for retirement, many retirees face a new challenge once they stop working: figuring out how to turn those savings into a steady and sustainable income stream.

This has become increasingly important as people are living longer, inflation keeps eroding their purchasing power, and retirement can easily stretch on for 20 to 30 years.

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a new Retirement Income Scheme (RIS) framework. It allows retirees to keep their NPS retirement corpus invested after retirement in a market linked portfolio that includes equities, corporate debt and government bonds. NPS subscribers can withdraw from this invested retirement corpus gradually through drawdown options to generate regular income after retirement.

What has changed under the new NPS retirement income scheme?

Under the existing NPS rules, non-government subscribers can typically withdraw up to 80% of their retirement corpus as a lump sum and must use at least 20% to purchase an annuity for regular income. Government subscribers can withdraw up to 60% and must use at least 40% to buy an annuity. Certain exceptions like 100% withdrawals apply for smaller corpus sizes.

The newly introduced Retirement Income Scheme offers an additional way to manage the NPS retirement corpus to generate regular income after retirement.

Instead of immediately withdrawing the eligible amount, retirees can now keep their retirement savings invested and receive regular payouts over time through SPR (Systematic Payout Rate) or SUR (Systematic Unit Redemption).

The new framework allows retirees to retain market exposure after retirement while creating a systematic income stream from their accumulated corpus, according to Vishwajeet Goel, Head, Pensionbazaar.com.

Retirees can keep their money invested in NPS schemes and withdraw funds periodically (monthly, quarterly, or annually), until the age of 85 or for a period chosen by the subscriber. The remaining corpus continues to to be invested in market-linked portfolio and earn market linked returns.

“This provides greater flexibility, liquidity, and the potential for better long-term returns,” says Goel.

The actual payout depends on portfolio performance, withdrawal rates, asset allocation as well as market conditions.

How much monthly income can a ₹1-crore NPS corpus potentially generate?

For many retirees, the most important question is simple: how much income can the new framework realistically provide?

Let’s understand this with an example of a retiree who has accumulated a corpus of ₹1 crore at age 60.

Under RIS, subscribers can choose between Systematic Unit Redemption (SUR) and Systematic Payout Rate (SPR) for periodic withdrawals from the non-annuitised corpus. Under SUR, units are redeemed in equal installments over the chosen drawdown period.

Under SPR, the withdrawal rate is linked to the subscriber's age and drawdown end age. As the remaining drawdown period shortens, the withdrawal rate rises. The payout amount is calculated on the prevailing value of the drawdown corpus and is reset every year on the subscriber's birthday, resulting in revised payouts over time. The illustration below is based on the SPR method.

Out of the ₹1 crore corpus, ₹20 lakh (20%) is used to purchase an annuity, generating a fixed monthly income of ₹10,000 at an assumed annuity rate of 6% per annum. The remaining ₹80 lakh (80%) is invested under RIS.

The built-in glide path under the new framework gradually reduces equity exposure as retirees age, helping manage risk.

Age bracket

Asset Class E

Asset Class C

Asset Class G

60

35%

10%

55%

65

25%

15%

60%

70

15%

20%

65%

75

10%

20%

70%

80 & above

10%

15%

75%

Source: PFRDA

Assuming annual returns of 10% for Equity (E), 7% for Corporate Bonds (C) and 6% for Government Securities (G). The RIS corpus is assumed to be fully exhausted after 25 years.

How your monthly income will change over years

Age

Monthly Annuity Income

Monthly SPR Withdrawal

SPR withdrawal rate

60

Rs 10,000

Rs 26,667

4.00%

65

Rs 10,000

Rs 38,035

5.00%

70

Rs 10,000

Rs 53,370

6.67%

75

Rs 10,000

Rs 73,881

10.00%

80

Rs 10,000

Rs 1,01,603

20.00%

84

Rs 10,000

Rs 1,30,955

100.00%

Note: The illustration demonstrates how payouts under SPR may evolve over time. Actual income will depend on the retirement corpus, asset allocation, market returns, withdrawal rates, and the period for which the retiree chooses to draw income. Unlike annuities, SPR payouts are not guaranteed and remain subject to market risk.

What makes the new framework different is that the drawdown income has the potential to grow over time.

However, these projections are illustrative and depend heavily on market conditions. Negative returns, especially during the early years of retirement, can affect both the corpus value and future payouts.

"Overall, the drawdown framework introduces greater flexibility and an additional option to the subscribers to generate better returns from their post-retirement corpus. At the sometime, it also puts responsibility on the retiree to understand market risks, return variability, and the importance of sticking to long term investing," says Sriram Iyer, MD & CEO, HDFC Pension.

Why the new NPS drawdown option is more relevant now

A pension that appears adequate at age 60 may lose substantial purchasing power over the next two or three decades.

The new RIS framework attempts to address this challenge.

The SPR and SUR framework gives retirees more control over their withdrawals while allowing the remaining corpus to continue participating in market growth. However, unlike annuities, returns and payouts are not guaranteed, making financial discipline and planning critical, says Goel.

Retaining some equity exposure after retirement can be particularly valuable because retirees today often spend 25–30 years or more in retirement, says Pravesh Gour, Senior Technical Analyst, Swastika Investmart.

A retirement portfolio invested entirely in fixed-income products may provide stability but could struggle to outpace inflation over such long periods.

The RIS Steady glide path introduced under the framework therefore continues maintaining some equity exposure while gradually reducing risk over time.

What are the risks of choosing market-linked retirement income under RIS?

While flexibility sounds attractive, experts caution that the drawdown approach is not suitable for everyone.

The biggest risk is market volatility.

“Since the retirement corpus remains invested, poor market performance can impact both the corpus value and future payouts. Retirees should therefore assess their risk appetite, expected expenses, and investment horizon carefully before opting for market-linked drawdown options,” Points out Goel.

Another challenge is the sequence-of-returns risk.

“One of the most significant challenges is the possibility of adverse market conditions during the early years of retirement. A major market decline combined with regular withdrawals can permanently weaken the portfolio's ability to recover,” says Gour.

Healthcare expenses, rising inflation, and longer life expectancy can further increase pressure on retirement savings.

Who should consider the new NPS drawdown options?

Experts believe the new framework will not suit every retiree equally.

According to Gour, the drawdown options may work best for retirees who:

are comfortable with market-linked investments,

can tolerate short-term volatility,

have supplementary income sources,

and want greater control over their retirement corpus.

These options may also appeal to retirees seeking income that has the potential to grow over time rather than remain fixed.

However, retirees who depend almost entirely on NPS savings for essential monthly expenses may prefer the certainty of other fixed income products.

For such individuals, guaranteed lifetime cash flows may provide greater peace of mind despite lower flexibility.

Does this make NPS more competitive against mutual fund SWPs?

The new framework has inevitably drawn comparisons with mutual fund Systematic Withdrawal Plans (SWPs), which many retirees already use for generating regular income.

According to Gour, the RIS and drawdown options significantly strengthen NPS as a retirement-income product because they combine systematic withdrawals with low fund management costs and a dedicated retirement structure.

“While mutual funds continue to provide greater liquidity and flexibility, NPS is becoming increasingly attractive for investors seeking a dedicated retirement platform that balances income generation with long-term wealth preservation,” he says.

Thus, the choice between NPS drawdowns and mutual fund SWPs may ultimately depend on an individual’s broader retirement strategy rather than a simple comparison of returns.

For many retirees, the optimal solution is finding the right balance between guaranteed income and market-linked growth, ensuring that retirement savings provide both financial security and the flexibility needed for a retirement that could last three decades or more.