In order to help retirees manage income and longevity risk, the Pension Fund Regulatory and Development Authority (PFRDA) has introduced Retirement Income Scheme (RIS). A structured withdrawal plan, it combines periodic payouts of the National Pension System (NPS) corpus, with a predefined investment strategy.
There are two variants of RIS designed by Pension Fund Regulatory and Development Authority: systematic payout rate (SPR), which is the default option, and systematic unit redemption (SUR).
Periodic payout options
Under SPR, the subscriber will always receive the same rupee amount every month, say Rs 25,000. The number of units his fund sells to generate that Rs 25,000 will vary based on whether markets are up or down. This makes budgeting easy.
SUR works the opposite way. The same number of units gets redeemed every month, but since the rupee value of each unit changes with the market, the subscriber’s monthly income fluctuates. In a bull market you pocket more; in a bear market, less.
Rahul Bhagat, CEO, DSP Pension Fund, says SPR is suitable for those who have fixed expenses, and need predictability. “SUR is better for one with a financial cushion like a pension who can ride out market swings and wants to capture the upside when markets do well,” he says.
Managed decumulation
As guardrails, RIS moves the corpus (up to 80%) into a dedicated retirement life-cycle fund and automatically rebalances the asset allocation every year as per the subscriber’s age. It follows an annual glide path that reduces equity exposure from 35% at age 60 to a floor of 10% at age 75. Similarly, corporate bond exposure goes up from 10% to 15% and government securities from 55% to 75%. The mandatory annuitisation requirement stays between 20% to 40% of the corpus.
The built-in equity tapering structure means the corpus stays partially in growth assets during the early and most critical years of retirement. Equities, over time, tend to outpace inflation, so even as the subscriber is drawing down, the remaining corpus has a chance to grow in real terms.
The impact of a prolonged market downturn is expected to be limited, as only 10% of the portfolio remains invested in equities after age 75. Vishwajeet Goel, head, Pensionbazaar.com, says, the majority of the corpus is allocated to relatively stable debt assets. “This conservative allocation helps protect retirement income while still maintaining some exposure to long-term growth.”
RIS or SWP?
The choice between RIS and SWP comes down to how much you trust yourself to manage withdrawals independently. If you are financially disciplined and comfortable managing your own drawdown, SWP gives you flexibility. “If you want the system to do the heavy lifting and ensure your corpus does not run out, RIS is the more sensible choice for most retirees,” says Bhagat.
