The Pension Fund Regulatory and Development Authority (PFRDA) has announced significant changes to the post-retirement choices available to National Pension System (NPS) subscribers. A new drawdown facility has been introduced, allowing retirees to receive periodic payouts from the withdrawable portion of their NPS corpus. This option enables retirees to opt for monthly, quarterly, or annual payouts from the lump-sum amount retained in the NPS.
Under the revised framework, retirees can now select phased withdrawals from the lump sum component, similar to the systematic withdrawal plan (SWP) in mutual funds. This move is aimed at enhancing cash flow predictability during retirement and ensuring the longevity of the subscriber’s corpus. The Retirement Income Schemes (RIS) launched by PFRDA seek to achieve these objectives.
The new facility does not alter the mandatory annuitization requirement of 20% or 40% of the corpus. It allows retirees to keep the remaining corpus invested after purchasing annuities, potentially leading to better long-term returns and helping them maintain inflation-adjusted cash flows. The drawdown framework does not guarantee fixed payouts as the funds remain exposed to market-linked investments, as clarified by PFRDA.
Subscribers opting for the drawdown option can choose between two payout methods: Systematic Payout Rate (SPR) and Systematic Unit Redemption (SUR). The SPR method adjusts payouts based on the subscriber’s age and chosen drawdown end age to preserve the corpus over time. On the other hand, the SUR mode redeems a fixed number of units periodically, offering another payout alternative for retirees.
