NPS Exit Rules: How the Retirement Income Scheme and Drawdown Options Work

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced Retirement Income Schemes (RIS) under the National Pension System, allowing subscribers to receive periodic payouts up to age 85 while preserving the mandatory annuitisation requirement. Subscribers can choose between Systematic Payout Rate (SPR) or Systematic Unit Redemption (SUR) methods, with payouts reset annually based on prevailing market values and age-based rates.

Also Read-ITR 2026: Withdrawing EPF Before Completing 5 Years Becomes Taxable: How to Report ITR?

What is the Quick Summary of NPS RIS and Drawdown Options?

• PFRDA introduced RIS and drawdown options through a circular dated May 15, 2026, aligned with the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025.
• Both Government and Non-Government subscribers can receive monthly, quarterly, or annual payouts up to age 85.
• The RIS Steady scheme reduces equity exposure from 35% at age 60 to a floor of 10% at age 75, held constant until age 85.
• Drawdown withdrawals do not affect the mandatory annuitisation requirement of 20% for Non-Government subscribers or 40% for Government subscribers, preserving the minimum lifelong pension.
• Two drawdown methods are available: Systematic Payout Rate (SPR) as the default, and Systematic Unit Redemption (SUR) with equal units.

What is the Retirement Income Scheme under NPS?

The Retirement Income Scheme (RIS) is a flexible decumulation framework introduced by PFRDA to provide subscribers with periodic income during retirement while allowing continued market-linked corpus growth. As per the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, the RIS enables subscribers to receive systematic payouts from their accumulated pension wealth without disrupting the mandatory annuitisation component.

Under the RIS, subscribers can select a phased withdrawal of their designated pension corpus through any approved drawdown option. Crucially, these drawdown withdrawals shall have no impact on the mandatory annuitisation requirement of 20% for Non-Government subscribers or 40% for Government subscribers, as the case may be, ensuring that the minimum statutory requirement for a lifelong pension remains intact. The framework applies uniformly to Government and Non-Government Subscribers (NGS) under NPS.

How do the drawdown options work under RIS?

Subscribers opting for drawdown can receive payouts on a monthly, quarterly, or annual basis, up to a maximum age of 85 years or as per the choice exercised at the time of exit from NPS. Upon successful processing of a drawdown request, periodic payouts commence from the following month. Subscribers may also continue with their existing pension fund and can switch their pension fund once every two financial years.

The two available drawdown methods are Systematic Payout Rate (SPR), which serves as the default option, and Systematic Unit Redemption (SUR) with equal units. For SPR subscribers, the payout rate and resulting payout amount are reset annually on the subscriber’s date of birth, based on the prevailing market value of the drawdown corpus. The age-wise SPR ranges from 4.00% at age 60 to 100.00% at age 84, with the payout rate increasing progressively as the subscriber ages. Asset rebalancing per age brackets also occurs annually based on the subscriber’s date of birth and prevailing market value.

How does the RIS Steady glide path protect your retirement corpus?

The RIS Steady scheme 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, as per the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025. This automatic de-risking mechanism ensures that as the subscriber ages, the portfolio progressively shifts toward more stable, debt-oriented instruments, protecting the drawdown corpus from short-term market volatility while still allowing measured equity participation for growth during the earlier years of the payout phase.

The SPR table above is extracted from the Annexure to the PFRDA circular dated May 15, 2026, and represents the age-wise maximum permissible systematic payouts under the SPR option for a subscriber exiting at age 60 with a drawdown end age of 85 years. The payout rate increases progressively with age, reflecting the shorter remaining drawdown period and the need to distribute the corpus over fewer remaining years. For SPR subscribers, a notification is issued every birthday detailing the reset of systematic payouts based on the prevailing market value and the new age-based payout rate.

How are SPR Payouts Calculated? (Worked Example)

Consider a subscriber who exits NPS at age 60 with an accumulated pension wealth of Rs. 80 lakhs and opts for monthly payouts under the SPR option with a drawdown period of 25 years up to age 85. As per the SPR table under the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, the applicable payout rate at age 60 is 4.00%. The annual payout is calculated as 4.00% of Rs. 80,00,000 = Rs. 3,20,000, translating to a monthly payout of approximately Rs. 26,667 (Rs. 3,20,000 divided by 12 months). This payout amount is reset annually on the subscriber’s birthday based on the prevailing market value of the drawdown corpus and the new age-based payout rate. If the corpus appreciates to Rs. 85 lakhs by age 61, the annual payout resets to 4.17% of Rs. 85,00,000 = Rs. 3,54,500, yielding a revised monthly payout of approximately Rs. 29,542. Conversely, if the corpus depreciates, the payout adjusts downward automatically, ensuring the drawdown facility remains sustainable throughout the chosen payout period.

How do you apply for the Retirement Income Scheme and set up drawdown?

Opting for the Retirement Income Scheme (RIS) requires a structured approach at the time of your normal exit from the National Pension System. As per the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, you must exercise this choice upon superannuation, retirement, or attaining 60 years of age. Once the drawdown request is authorized, fresh contributions into the NPS account cease immediately.

Follow these steps to activate your drawdown facility:

1. Initiate Normal Exit: Submit your exit request through the CRA (Central Recordkeeping Agency) portal or your Point of Presence (PoP). You must specify the portion of the corpus allocated for drawdown versus annuity purchase at this stage.
2. Select Payout Frequency: Choose your preferred periodicity for receiving income. As per the PFRDA circular dated May 15, 2026, you can opt for monthly, quarterly, or annual payouts. The periodic payouts will commence from the month following the successful processing of your request.
3. Choose Drawdown Method: Select either the Systematic Payout Rate (SPR) or Systematic Unit Redemption (SUR). If no explicit choice is exercised, the SPR option is treated as the default.
4. Allocate Annuity Corpus: Ensure compliance with the mandatory annuitisation requirement. For Non-Government subscribers, at least 20% of the accumulated pension wealth must be utilized for annuity purchase, while Government subscribers must allocate at least 40%, as per the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025. The drawdown applies strictly to the remaining lump-sum portion.
5. Confirm Fund Choice: You may continue with your existing Pension Fund or switch at the time of exit. Note that subsequent switches are restricted to once every two financial years.

Who is eligible for the NPS RIS and drawdown facility?

The RIS and drawdown facility is designed for subscribers entering the decumulation phase of their retirement journey. However, specific eligibility criteria apply based on subscriber category and exit type, as outlined in the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025.

Eligibility is restricted to the following parameters:

• Subscriber Category: Both Government and Non-Government Subscribers (NGS) under NPS are eligible to opt for the drawdown facility.
• Age Criteria: Subscribers can receive periodic payouts up to a maximum age of 85 years. The drawdown period is calculated from the age of exit up to the chosen drawdown end age, capped at 85.
• Exit Type: The RIS drawdown is strictly available for normal exits. Subscribers exiting upon superannuation, retirement, or voluntarily after attaining 60 years of age (with 15 years of subscription for the All-Citizen model) can access this facility. It is not available for premature exits or upon the death of the subscriber.
• Annuity Compliance: Eligibility is contingent upon setting aside the mandatory annuitisation component. Non-Government subscribers must annuitise at least 20% of the corpus, while Government subscribers must annuitise at least 40%. Only the remaining corpus is eligible for the drawdown facility.

Subscribers must also note that the drawdown facility applies exclusively to the lump-sum portion of the accumulated pension wealth. The mandatory annuity purchase ensures the foundational lifelong pension remains untouched, while the drawdown provides liquidity and market-linked growth potential during the interim phase up to age 85.

How does Systematic Unit Redemption differ from Systematic Payout Rate?

While SPR applies a predetermined percentage rate to the prevailing corpus value each year, the Systematic Unit Redemption (SUR) method redeems a fixed number of units from the drawdown corpus at each payout interval. Under SUR, the payout amount fluctuates with the NAV of the underlying pension fund units, meaning the subscriber bears the market volatility risk directly in the income amount received. In contrast, SPR adjusts the payout rate annually based on age and resets the rupee amount each birthday, providing more predictable income in absolute terms while the corpus value fluctuates.

The choice between SPR and SUR depends on the subscriber’s risk tolerance and income predictability preferences. SPR suits those seeking stable periodic income that is recalibrated annually, while SUR appeals to subscribers comfortable with market-linked payout variations in exchange for potentially higher income during bullish phases. Both methods preserve the mandatory annuitisation component and permit continuation with the existing pension fund or a switch, subject to the once-in-two-years restriction.

What happens to residual corpus under SPR at the end of the drawdown period?

Under the SPR option of systematic income drawdown, there may be residual corpus remaining from the component utilized for obtaining payouts at the end of the drawdown period. As per the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, the subscriber retains control over this residual balance and can choose to withdraw it as a lump sum or utilize it for annuity purchase at the termination of the drawdown mandate. This residual corpus treatment ensures that the subscriber does not lose access to remaining pension wealth even after systematic payouts have concluded.

How is Residual Corpus Treated Under SPR at the End of the Drawdown Period? (Worked Example)

Consider the subscriber from the earlier example who exited at age 60 with Rs. 80 lakhs and opted for SPR with monthly payouts up to age 85. If, after 25 years of systematic payouts, the drawdown corpus has a residual balance of Rs. 5 lakhs due to market appreciation outpacing the payout rate, the subscriber can withdraw this Rs. 5 lakhs as a lump sum or purchase an additional annuity to supplement the mandatory annuity income already in payment. The residual corpus is distinct from the mandatory annuitisation component, which remains untouched throughout the drawdown period. This treatment applies uniformly to both Government and Non-Government subscribers under the RIS framework.

What Should You Do Next?

1. Review your NPS corpus allocation: Log in to the CRA portal and assess your accumulated pension wealth to determine the optimal split between drawdown and annuity based on your corpus size and applicable annuitisation threshold (20% for Non-Government subscribers and 40% for Government subscribers, as per PFRDA (Exits and Withdrawals under the National Pension System) (Amendment) Regulations, 2025).
2. Compare SPR vs SUR for your income needs: If you prefer predictable income amounts that reset annually with age, opt for SPR. If you want flexibility in unit redemption with market-linked variability, consider SUR. The default SPR applies if no explicit choice is exercised at exit.
3. Plan your payout frequency: Decide whether monthly, quarterly, or annual payouts align with your retirement expenses. Remember, payouts commence only from the month following successful processing of your drawdown request.
4. Verify your bank account details: Ensure your bank account is updated and verified in the CRA system through Penny Drop verification, as all drawdown payouts are credited directly to your registered bank account.
5. Assess the RIS Steady glide path suitability: If you are risk-averse and want automatic de-risking from 35% equity at age 60 down to 10% at age 75, the RIS Steady scheme aligns with a conservative retirement income strategy (as per PFRDA Circular dated May 15, 2026).
6. Understand the annual reset mechanism: For SPR subscribers, note that your payout amount will change every birthday based on the prevailing market value and the new age-based payout rate. Budget for potential fluctuations in your retirement income.
7. Consult a financial advisor for tax planning: While the drawdown facility provides flexibility, the annuity income received post-retirement is taxable at your applicable slab rate. Plan your overall tax liability under both old and new regimes before finalizing your exit strategy.

What are the Frequently Asked Questions about NPS Exit and Drawdown Options?

Sources

• TaxGuru — PFRDA Introduces Flexible NPS Retirement Income Drawdown Scheme
• TaxGuru — PFRDA (Exits and Withdrawals under National Pension System) Regulations, 2015
• TaxGuru — NPS: Latest PFRDA Amendments and Tax Benefit
• TaxGuru — Key Amendments in PFRDA (Exits and Withdrawals under NPS) Regulations, 2015
• TaxGuru — National Pension System Exit Framework Revised
• TaxGuru — NPS 2025 Amendments Explained in a Simple Manner
• ClearTax — National Pension Scheme (NPS)
• TaxGuru — Systematic Lump Sum Withdrawal for NPS Subscribers

Plan your retirement income wisely. The Retirement Income Scheme offers a structured yet flexible approach to managing your NPS corpus during the decumulation phase. Assess your payout needs, understand the SPR and SUR methods, and initiate the process through your CRA portal to ensure timely activation of your retirement income stream.