How NPS's 2026 withdrawal rules are changing retirement planning

Subscribers can now choose between systematic payout rate and systematic unit redemption drawdown options

- Jash Kriplani

Until recently, the National Pension System did not work for many, and the primary reason for this was the mandate of 40% annuitization. Under this, an investor had to commit at least 40% of her retirement nest egg accumulated through the NPS into buying an annuity at the time of retirement and at the rates prevailing then.

But that changed last year, when the mandatory annuity rule was brought down to 20% for non-government subscribers, following the introduction of a systematic lump sum withdrawal plan in 2023 that allowed customers to keep the corpus inside the NPS and withdraw in instalments over time, rather than taking it all at once.

This year, the Pension Fund Regulatory and Development Authority (PFRDA) went a step further. It introduced the Retirement Income Scheme (RIS) that allows retirees to withdraw non-annuitized corpus in a regular and systematic manner.

The RIS allows retirees to keep the non-annuitized corpus within the NPS, instead of withdrawing it as a lump sum, and draw a regular income until the age of 85.

How it works

A subscriber turning 60 or exiting after 15 years (early exit option is available only for non-government employees) can leave the lump-sum portion inside NPS, in a purpose-built fund called RIS Steady. From there, the subscriber can draw it down gradually through monthly, quarterly, or annual payouts, until the age of 85.

The mandatory annuity portion is separate and unchanged—RIS only governs the drawdown of the remaining corpus.