Pension Fund Regulatory and Development Authority (PFRDA) has recently announced Retirement Income Schemes (RIS) with two drawdown (withdrawal) options under the National Pension System (NPS). Under RIS subscribers get monthly, quarterly and annually payout options at retirement till the maximum age of 85 years.
These periodic payouts are generated from the lump sum part of a retirement corpus, and therefore this regular income is in addition to mandatory annuity payouts that a subscribers get. As per recent changes in NPS only 20% of NPS corpus is needed to be mandatorily invested in annuity for a large number of NPS subscribers. They can invest in RIS with the remaining part of their NPS corpus.
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The scheme is open to government and non-government subscribers.. A subscriber can opt for periodic withdrawals using two options.
Systematic Payout Rate (SPR), which is a default option
Systematic Unit Redemption (SUR) Equal Units
Let’s understand how the RIS scheme works and how an NPS subscriber can get periodic payouts under the scheme.
Retirement Income Schemes features
Under the Retirement Income Schemes, a subscriber can choose the RIS Steady option at the time of retirement (60 years of age). They can withdraw their mandatory annuity portion from their retirement corpus and invest the lump sum part partially or fully in RIS. Under this scheme your money is invested in in various asset classes Equity, Corporate Bond and Government Bond in a predefined portion.
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RIS Steady option employs a continuously declining, annual glide path that reduces equity exposure from 35% at age 60 to a floor of 10% at age 75, held constant thereafter until age 85.
Age-bracket wise asset class distribution under RIS Steady strategy
| Age Bracket | Asset Class E | Asset Class C | Asset Class G |
| Up to 60 years | 35% | 10% | 55% |
| 61 years | 33% | 11% | 56% |
| 62 years | 31% | 12% | 57% |
| 63 years | 29% | 13% | 58% |
| 64 years | 27% | 14% | 59% |
| 65 years | 25% | 15% | 60% |
| 66 years | 23% | 16% | 61% |
| 67 years | 21% | 17% | 62% |
| 68 years | 19% | 18% | 63% |
| 69 years | 17% | 19% | 64% |
| 70 years | 15% | 20% | 65% |
| 71 years | 14% | 20% | 66% |
| 72 years | 13% | 20% | 67% |
| 73 years | 12% | 20% | 68% |
| 74 years | 11% | 20% | 69% |
| 75 years | 10% | 20% | 70% |
| 76 years | 10% | 19% | 71% |
| 77 years | 10% | 18% | 72% |
| 78 years | 10% | 17% | 73% |
| 79 years | 10% | 16% | 74% |
| 80 years and above | 10% | 15% | 75% |
The pension body says that the glide path optimises periodic payouts, enhances cashflow predictability and corpus longevity through continued support to corpus appreciation.
PFRDA also claims that RIS minimises the risk of early corpus exhaustion before the end of the withdrawal period.
How does withdrawal work?
While your corpus earns returns as it is invested, you can pick two options for systematic withdrawal of your retirement corpus.
Systematic Payout Rate (SPR)
Under this option, the payout rate of a subscriber increases with their age. For someone exiting at 60 years, the payout rate is 4% of the corpus. By 70, it increases to 6.67%, by 80, to 20% and by 85, to 100%. The payout rate is reset on the birthday of an NPS subscriber.
How the systematic payout rate will be calculated
The Systematic Payout Rate is an annual payout rate and is expressed as a percentage of remaining retirement corpus. The rate will depend on the withdrawal end age and the current age of an NPS subscriber.
It will be calculated by a formula-
Systematic Payout Rate (SPRCA) at the current age= 1/(Withdrawal end age - current age) %
For instance, If withdrawal end age is 85 then for a person at age of 70 the SPR would be 6.67% (1/(85-70)
Systematic payouts for a given year will be calculated using the Systematic Payout Rate applicable at the current age on the market value of the withdrawal corpus on every date of birth of the subscriber.
The formula for the same is as follows-
Systematic payout amount (SPn) = SPRCA/n X DrCCA
Where n= periodicity of payment (monthly, quarterly, annual)
DrCCA= Market value of the drawdown (remaining corpus) on the date of the birth of the subscriber or the next business day if birthday is a non-working day.
So in the previous example if the payout happens quarterly and remaining corpus at the age of 70 is Rs 1 crore the quarterly payout amount would be Rs 1,66,667 (0.0667*10000000/4). In case of monthly withdrawal the payout amount would be Rs 55,556 (0.0667*10000000/12).
The payout rate is reset every birthday of subscriber and is as per the following table
| Age | Payout Rate |
| 60 | 4.00% |
| 61 | 4.17% |
| 62 | 4.35% |
| 63 | 4.55% |
| 64 | 4.76% |
| 65 | 5.00% |
| 66 | 5.26% |
| 67 | 5.56% |
| 68 | 5.88% |
| 69 | 6.25% |
| 70 | 6.67% |
| 71 | 7.14% |
| 72 | 7.69% |
| 73 | 8.33% |
| 74 | 9.09% |
| 75 | 10.00% |
| 76 | 11.11% |
| 77 | 12.50% |
| 78 | 14.29% |
| 79 | 16.67% |
| 80 | 20.00% |
| 81 | 25.00% |
| 82 | 33.33% |
| 83 | 50.00% |
| 84 | 100.00% |
2. Systematic Unit Redemption (SUR) Equal Units
In the second withdrawal option under the new scheme, instead of withdrawing an increasing percentage payout of every year, an NPS subscriber can redeem a fixed amount of net asset value (NAV or units) every month, quarter or year. Here, if the value of your units rises, you get a high payout. In contrast, if the value of units decrease, you get a lower amount.
How your payout through SUR will be calculated?
The following parameters serve as the basis for the calculations and examples provided herein:
| Parameter | Value |
| Corpus | Rs. 80 lakhs |
| NAV at the time of opting drawdown | 10 |
| Units at the time of opting drawdown | 8,00,000 |
| Age of exit | 60 years |
| Drawdown period | 25 years |
| Payout frequency | Monthly, i.e., 12 per year |
A subscriber can redeem their units using the following systematic approach-
SUR Equal Units
Under this method, the total unit balance is liquidated in equal instalments over the selected withdrawal period. The total number of units at the start of withdrawal are divided into equal number of units to be redeemed at each payout frequency using the following formula-
Total number of units at start number of units per period = Withdrawal period x payout frequency.
Thus, with the figures highlighted in the illustrative baseline,
Total number of units to redeemed per month will be
Number of units per month = 8,00,000 25 x 12 = 2666.67 units per month
If the unit price is Rs 10, the monthly payout will be = 2,666.67X10= Rs 26,666
