Two friends, Nirmal and Rahul, are chatting over tea.

Nirmal: Rahul, I read that the pension fund regulator PFRDA has launched a Retirement Income Scheme (RIS) under NPS. What’s new about it?

Rahul: Until now, NPS (National Pension System) was mainly about building a retirement corpus. Once you retire, a part of that corpus had to be used to buy an annuity (a product that provides regular pension income) and the rest could be withdrawn as a lump sum.

The new Retirement Income Scheme addresses a different question: how can retirees convert their savings into a steady income stream without withdrawing everything at once? Under this, retirees can leave the non-annuitised portion of their corpus within NPS and draw it down gradually through monthly, quarterly or annual payouts, up to the age of 85. Non-annuitised here means the part not used to buy an annuity.

Nirmal: How is this different from the existing annuity option?

Rahul: The annuity requirement remains unchanged. Government employees must still use at least 40 per cent of their corpus to buy an annuity, while non-government subscribers must annuitise at least 20 per cent. RIS applies only to the remaining corpus. Instead of taking the balance as a lump sum and figuring out where to invest it, you can keep it within NPS and withdraw it systematically over time.

Nirmal: Where is this money invested while I’m drawing income from it?

Rahul: It is invested in a new fund called RIS Steady. It follows a glide-path strategy. At age 60, the fund allocates 35 per cent to equities/shares, 10 per cent to corporate bonds and 55 per cent to government securities. As you age, the equity exposure is gradually reduced and the allocation to safer assets increases.

The idea is simple. Retirement can easily last 20 to 30 years. A retiree still needs some equity exposure to beat inflation, but risk should reduce with age. RIS Steady tries to strike that balance automatically.

Nirmal: How do the withdrawals work?

Rahul: There are two methods. One is Systematic Payout Rate (SPR). Here, the annual withdrawal rate depends on your age. At age 60, the payout rate works out to about 4 per cent. So if your drawdown corpus (the amount kept aside for phased withdrawals) is ₹1 crore, you would receive roughly ₹4 lakh a year, or around ₹33,000 a month. The amount remains fixed for one year and is recalculated annually. SPR rate increases with your age.

The second method is Systematic Unit Redemption (SUR). When you opt for it, your corpus is converted into units and a fixed number of units is redeemed every payout period. It is like the SWP (Systematic Withdrawal Plan) of mutual funds. For example, a ₹1-crore corpus with an NAV (net asset value) of ₹10 translates into 10 lakh units. If these are spread over 25 years of monthly payouts, about 3,333 units are redeemed every month constantly. Since the fund’s NAV changes, the rupee amount you receive can vary.

Nirmal: What are the advantages of this new RIS scheme?

Rahul: The biggest benefit is that it tackles longevity risk i.e. the risk of outliving your savings. Many retirees struggle to manage a large lump-sum corpus after retirement.

Another advantage is that SPR discourages excessively high withdrawal rates. That reduces the risk of depleting the corpus too quickly, especially during the initial periods of poor market returns.

Nirmal: Is there a catch?

Rahul: Yes. Unlike an annuity, RIS does not guarantee income. The corpus remains invested in market-linked assets, so returns and payouts can fluctuate. Also, the preset asset allocation may not suit everyone. Some retirees may find the 35 per cent equity exposure too aggressive, while others may consider it too conservative.

Retirees shouldn’t assume RIS is the perfect answer for everyone. Each person’s financial situation is different. The right choice will depend on income needs, risk appetite, tax considerations and how comfortably the payouts can sustain their lifestyle through retirement.

Published on May 30, 2026