📝NPS new withdrawal option
The National Pension System (NPS) has undergone several reforms recently, including changes to exit, investment norms, and now the withdrawal phase.
Currently, at least 20% of the corpus must compulsorily purchase an annuity, while the remaining 80% can be a lump sum or systematic lump sum withdrawal (SLW).
The Pension Fund Regulatory and Development Authority (PFRDA) has introduced the Retirement Income Scheme (RIS) as an option for the 80% lump sum portion.
RIS includes a structured withdrawal plan and built-in guardrails designed to help retirees make their corpus last longer.
'RIS Steady' is the only current variant of the scheme, offering orderly exit and regular payouts via two drawdown options.
RIS Steady offers systematic unit redemption (SUR) and systematic payout rate (SPR), with SPR designated as the default option.
According to the PFRDA, RIS Steady aims to improve cash flow predictability and corpus longevity, minimizing the risk of funds being exhausted prematurely.
Systematic payouts from RIS Steady commence once the accumulation phase concludes and continue until the subscriber reaches age 85.
RIS Steady provides a predefined withdrawal pathway where equity exposure decreases in line with the subscribers’ advancing age.
Subscribers can choose to remain invested with their accumulation phase pension fund manager or make a switch every two years.
In the event of a subscriber’s death while systematic withdrawal is active, the lump sum, minus scheduled payouts, will be given to the beneficiaries.
Experts state RIS provides retirees with greater flexibility, more stable income, and efficient management of their retirement savings.
Vishwajeet Goel from PensionBazaar notes RIS allows systematic pension wealth withdrawal while the remaining corpus stays invested, benefiting from market participation.
Financial adviser Anuj Kesarwani of Zenith Finserve says RIS helps manage living expenses during longer retirement phases, preventing early exhaustion of savings.
Rajesh Khandagale, Senior Vice President (NPS) at KFin Technologies, states that RIS gives money a chance to grow further during retirement.
RIS is a thoroughly designed scheme with data-backed calculations ensuring corpus longevity, unlike SLW which is primarily a withdrawal method.
| Feature | Systematic Lump Sum Withdrawal (SLW) | Retirement Income Scheme (RIS) |
|---|---|---|
| Nature | Way to withdraw money | Thoroughly designed scheme with data-backed calculations |
| Goal | Automated, regular withdrawals determined by subscriber | Ensure retirement corpus lasts long; manage longevity risk |
| Discipline | Less structured; allows subscriber to decide amount and timing | Aims to bring better discipline to retirement withdrawals |
Sumit Shukla, MD and CEO of Axis Pension, states SLW is a withdrawal method, while RIS is a designed scheme ensuring corpus longevity and managing longevity risk.
Anuj Kesarwani highlights that a major advantage of RIS over SLW is its potential to instill better discipline in retirement withdrawals.
Once opting for RIS, subscribers can select either systematic unit redemption (SUR) or systematic payout rate (SPR), with SPR being the default plan.
In SUR, the number of units withdrawn remains fixed, but monthly income fluctuates as Net Asset Value (NAV) changes with market performance.
Vishwajeet Goel explains that SUR involves redeeming a fixed number of units, causing payouts and residual corpus to vary with market performance.
Under SPR, retirees receive periodic payouts from their corpus based on a pre-defined age-linked payout rate prescribed by the PFRDA.
The SPR is fixed for 12 months and is recalculated annually on the subscriber’s birthday, based on the remaining drawdown period until age 85.
As the retiree ages, the systematic payout rate gradually increases under the SPR option.
Periodic payouts are calculated on the market value of the remaining retirement corpus at the annual reset date.
Since the corpus remains invested during the drawdown phase, payouts under SPR are market-linked and may fluctuate based on investment performance.
While reforms aim to make RIS retiree-friendly, individuals must ascertain its suitability considering complexities and market-linked returns.
Some less financially-savvy retirees may find the multitude of options within NPS and RIS overwhelming.
Anuj Kesarwani notes NPS is already complex with multiple asset classes, annuity, taxation, and withdrawals, and RIS adds another layer.
Risk-averse investors should note that RIS returns are market-linked and not guaranteed, unlike annuities or fixed deposits.
Rajesh Khandagale states RIS is likely more relevant for investors comfortable with market fluctuations who prefer keeping their corpus invested for higher returns.
Risk-averse subscribers may prefer guaranteed income options over RIS's market-linked returns.
Those willing to take higher risks may find the maximum equity exposure of 35% in RIS inadequate.
The choice among lump sum withdrawal, RIS Steady, or SLW depends on individual risk appetite, ability to manage withdrawals, objective, and supplementary retirement income sources.
The National Pension System (NPS) has undergone several reforms recently, including changes to exit, investment norms, and now the withdrawal phase.
Currently, at least 20% of the corpus must compulsorily purchase an annuity, while the remaining 80% can be a lump sum or systematic lump sum withdrawal (SLW).
The Pension Fund Regulatory and Development Authority (PFRDA) has introduced the Retirement Income Scheme (RIS) as an option for the 80% lump sum portion.
RIS includes a structured withdrawal plan and built-in guardrails designed to help retirees make their corpus last longer.
'RIS Steady' is the only current variant of the scheme, offering orderly exit and regular payouts via two drawdown options.
RIS Steady offers systematic unit redemption (SUR) and systematic payout rate (SPR), with SPR designated as the default option.
According to the PFRDA, RIS Steady aims to improve cash flow predictability and corpus longevity, minimizing the risk of funds being exhausted prematurely.
Systematic payouts from RIS Steady commence once the accumulation phase concludes and continue until the subscriber reaches age 85.
RIS Steady provides a predefined withdrawal pathway where equity exposure decreases in line with the subscribers’ advancing age.
Subscribers can choose to remain invested with their accumulation phase pension fund manager or make a switch every two years.
In the event of a subscriber’s death while systematic withdrawal is active, the lump sum, minus scheduled payouts, will be given to the beneficiaries.
Experts state RIS provides retirees with greater flexibility, more stable income, and efficient management of their retirement savings.
Vishwajeet Goel from PensionBazaar notes RIS allows systematic pension wealth withdrawal while the remaining corpus stays invested, benefiting from market participation.
Financial adviser Anuj Kesarwani of Zenith Finserve says RIS helps manage living expenses during longer retirement phases, preventing early exhaustion of savings.
Rajesh Khandagale, Senior Vice President (NPS) at KFin Technologies, states that RIS gives money a chance to grow further during retirement.
RIS is a thoroughly designed scheme with data-backed calculations ensuring corpus longevity, unlike SLW which is primarily a withdrawal method.
| Feature | Systematic Lump Sum Withdrawal (SLW) | Retirement Income Scheme (RIS) |
|---|---|---|
| Nature | Way to withdraw money | Thoroughly designed scheme with data-backed calculations |
| Goal | Automated, regular withdrawals determined by subscriber | Ensure retirement corpus lasts long; manage longevity risk |
| Discipline | Less structured; allows subscriber to decide amount and timing | Aims to bring better discipline to retirement withdrawals |
Sumit Shukla, MD and CEO of Axis Pension, states SLW is a withdrawal method, while RIS is a designed scheme ensuring corpus longevity and managing longevity risk.
Anuj Kesarwani highlights that a major advantage of RIS over SLW is its potential to instill better discipline in retirement withdrawals.
Once opting for RIS, subscribers can select either systematic unit redemption (SUR) or systematic payout rate (SPR), with SPR being the default plan.
In SUR, the number of units withdrawn remains fixed, but monthly income fluctuates as Net Asset Value (NAV) changes with market performance.
Vishwajeet Goel explains that SUR involves redeeming a fixed number of units, causing payouts and residual corpus to vary with market performance.
Under SPR, retirees receive periodic payouts from their corpus based on a pre-defined age-linked payout rate prescribed by the PFRDA.
The SPR is fixed for 12 months and is recalculated annually on the subscriber’s birthday, based on the remaining drawdown period until age 85.
As the retiree ages, the systematic payout rate gradually increases under the SPR option.
Periodic payouts are calculated on the market value of the remaining retirement corpus at the annual reset date.
Since the corpus remains invested during the drawdown phase, payouts under SPR are market-linked and may fluctuate based on investment performance.
While reforms aim to make RIS retiree-friendly, individuals must ascertain its suitability considering complexities and market-linked returns.
Some less financially-savvy retirees may find the multitude of options within NPS and RIS overwhelming.
Anuj Kesarwani notes NPS is already complex with multiple asset classes, annuity, taxation, and withdrawals, and RIS adds another layer.
Risk-averse investors should note that RIS returns are market-linked and not guaranteed, unlike annuities or fixed deposits.
Rajesh Khandagale states RIS is likely more relevant for investors comfortable with market fluctuations who prefer keeping their corpus invested for higher returns.
Risk-averse subscribers may prefer guaranteed income options over RIS's market-linked returns.
Those willing to take higher risks may find the maximum equity exposure of 35% in RIS inadequate.
The choice among lump sum withdrawal, RIS Steady, or SLW depends on individual risk appetite, ability to manage withdrawals, objective, and supplementary retirement income sources.