Big NPS change: PFRDA introduces new pension income and withdrawal system—What it means for you

As per the circular published by the Pension Fund Regulatory and Development Authority (PFRDA) on May 15, 2026, two new categories have been introduced under the National Pension Scheme (NPS). These include Retirement Income Schemes (RIS) and an enhanced drawdown facility in order to provide greater flexibility during the period of payout while ensuring growth of the corpus.

The new provisions have been made pursuant to the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025 and will come into effect after the implementation of necessary system-level and operational requirements.

Objective of the new framework

As per the circular, the key purpose behind the introduction of the RIS mechanism and drawdown scheme is to:

• Enhance the predictability of periodic cash flows in the decumulation stage
• Facilitate systematic, market-based withdrawals from the accumulated corpus
• Help in ensuring the longevity of the corpus and mitigate the risks associated with early exhaustion of retirement savings.
• Allow corpus growth even in the payout period

Notably, the circular states that while the introduction of RIS and drawdown schemes will facilitate phased systematic withdrawals, there shall be no change in the mandatory annuitisation norm of 20 per cent or 40 per cent of the corpus, as applicable under existing rules, ensuring the continuity of life-long pension security.

Introduction of Retirement Income Schemes (RIS)

The circular introduces a dedicated life-cycle investment structure called Retirement Income Schemes (RIS), designed specifically for managing retirement withdrawals under NPS.

What is the RIS Steady variant?

The flagship variant, RIS Steady, adopts a strategy of a gradual glide path in terms of asset allocation, with the allocation to equities supposed to fall with increasing age:

• Allocation to equities gradually decreases after retirement age
• It begins with 35 per cent at 60 years of age and goes down to 10 per cent at the age of 75
• From that point on, the equity allocation will be kept at its lowest possible level until 85 years of age

The remaining allocation is distributed across debt and government securities in line with the scheme framework. The structured glide path is intended to balance growth potential with capital stability during retirement years.

Drawdown options under NPS

The circular introduces two structured drawdown mechanisms through which subscribers can receive periodic payouts from the non-annuitised portion of their corpus after exit:

1) Systematic Payout Rate (SPR)–Default option
2) Systematic Unit Redemption (SUR)–Equal Units method

Subscribers may choose to receive payouts on a monthly, quarterly, or annual basis, with drawdown permitted up to age 85 or any age selected at exit.

Subscribers also retain the option to continue with their existing pension fund and are permitted to switch pension funds once in every two financial years, subject to the framework conditions.

Systematic Payout Rate (SPR)

Under the SPR mechanism, payouts are calculated as a function of the remaining drawdown period and the prevailing market value of the corpus.

Key features include:

• The payout rate depends on the age and becomes higher with decreasing remaining drawdown period
• The rate is recalculated on annual basis on the subscriber’s date of birth
• Each reset reflects the prevailing market value of the corpus
• The system ensures structured distribution of withdrawals across the chosen retirement horizon

The payout amount is therefore dynamic and adjusts annually based on corpus value and remaining tenure.

Systematic Unit Redemption (SUR)

Under the SUR (Equal Units) method, the withdrawals are made through proportional and systematic unit redemption over the chosen drawdown period.

• Accumulated total units at exit are distributed proportionately over the payout period
• Units are redeemed in equal instalments based on chosen frequency (monthly/quarterly/annual)
• Proportional units are redeemed from each asset class in the portfolio

In the case of 8,00,000 units and a chosen drawdown period of 25 years on a monthly basis, units are proportionately allocated to the number of instalments.

Safeguards and mandatory disclosures

To ensure transparency and informed decision-making, the circular mandates detailed disclosures by Pension Funds, Central Record Keeping Agencies (CRAs), and other intermediaries.

Subscribers must be clearly informed that:

• No guaranteed returns apply under drawdown payouts
• All payouts are subject to market risk
• Illustrative projections of payouts and residual corpus must be provided
• Annual retirement income statements must be issued separately from Tier I and Tier II statements

The statement will include details such as:

• Annual reset notifications for SPR subscribers
• Asset allocation changes under the glide path
• Summary of corpus performance and payout adjustments

Residual corpus treatment

The circular provides flexibility for any residual corpus remaining after completion of the drawdown period under SPR:

Subscribers may choose to:

• Withdraw the entire residual corpus as a lump sum, or
• Use it along with the annuity component (if deferred) to purchase an annuity, in accordance with applicable regulations

Applicability and operational timeline

The circular applies to both:

• Government subscribers
• Non-Government Subscribers (NGS)

It will come into effect only after system capabilities and operational frameworks are implemented by the Authority.

The provisions have been issued under the powers conferred by Section 14 of the PFRDA Act, 2013.