Why in the news
PFRDA introduced the Retirement Income Scheme so that NPS subscribers can leave the withdrawable 60% of their corpus invested after retirement instead of taking a lump sum. NPS was mainly an accumulation product until now.
Key facts
- Regulator: PFRDA, under the Finance Ministry.
- Coverage: the withdrawable 60% of NPS Tier I corpus, not the 40% annuity part.
- Design: a life-cycle asset allocation framework with two drawdown choices.
- First major step of NPS into the withdrawal phase.
RIS Steady Life Cycle allocation (%)
| Asset | Up to 60 | At 65 | At 70 | At 75 | At 80+ |
|---|
| Government securities (G) | 55 | 60 | 65 | 70 | 75 |
| Corporate bonds (C) | 10 | 15 | 20 | 20 | 15 |
| Equity (E) | 35 | 25 | 15 | 10 | 10 |
SPR versus SUR
| Point | SPR (Systematic Payout Rate) | SUR (Systematic Unit Redemption) |
|---|
| How it works | A percentage of the corpus is drawn each year | A fixed number of units is redeemed at intervals |
| Formula | 100 divided by (end age minus current age) | Total units divided by years and by frequency |
| Example | Age 60, end age 85 gives 4% in year one | 8,00,000 units over 25 years monthly gives about 2,667 units a month |
| Over time | Percentage rises every year | Units stay constant; payout moves with NAV |
| Sequence risk | Lower | Higher |
| Maximum end age | 85 years | Chosen by subscriber |
Annuity surrender relief
- Allowed on critical illness of the annuitant or a family member.
- Depends on policy terms and the annuity provider’s discretion; charges and taxes are still levied.
- Usually unavailable where the annuity has no return of purchase price.
Where RIS fits among retirement options
- Annuity: guaranteed lifetime income, low inflation cover, very low liquidity.
- RIS: market-linked, variable income, partial inflation cover through equity, high liquidity.
- SCSS: fixed interest, five-year tenure. PMVVY: closed to new entries since 2023. Bank FDs: steady short-term income.
- Suits retirees with a stable annuity for basics who can tolerate payout swings; less suitable for those with no other guaranteed income or very low risk appetite.
- Advice: diversify, combine annuity, RIS and an emergency reserve, review yearly, treat surrender as a last resort and prefer SPR if unsure.
Background
- NPS: defined-contribution, market-linked pension scheme begun in 2004 for new central government staff and opened to all citizens in 2009; asset classes E, C, G and A.
- PFRDA is the statutory pension regulator under the PFRDA Act, 2013.
- Standard exit at 60: at least 40% must buy an annuity; up to 60% can be taken tax-free as a lump sum.
- Sequence-of-returns risk: poor returns early in retirement while withdrawing. Longevity risk: outliving savings, which annuities address.
Exam angle
- Regulator: PFRDA; scheme: Retirement Income Scheme (RIS).
- SPR formula: 100 divided by remaining years; maximum end age 85.
- Related terms: annuity, sequence risk, longevity risk, Tier I.