The Pension Fund Regulatory and Development Authority has introduced a new Retirement Income Scheme and flexible drawdown options under the National Pension System, alongside easing annuity surrender rules to provide greater financial flexibility for retirees in India.
Illustration: Dominic Xavier/Rediff
Key Points
- PFRDA has introduced a new Retirement Income Scheme (RIS) and drawdown options under NPS, allowing subscribers to withdraw portions of their corpus in phases while the remainder continues to generate returns.
- The drawdown facility offers monthly, quarterly, or annual payouts up to age 85, available to both government and non-government NPS subscribers.
- PFRDA has eased annuity surrender rules, permitting exits in cases of critical illness of the annuitant or a family member, or for annuity contracts issued before October 24, 2024, that included a surrender clause.
- This relaxation provides a limited emergency exit option from otherwise illiquid annuity products, addressing hardships faced by retirees due to earlier blanket restrictions.
- Despite the new options, subscribers are still required to use a minimum prescribed portion (20% or 40%) of their corpus for mandatory annuitisation to ensure a lifelong pension.
The Pension Fund Regulatory and Development Authority (PFRDA) on Friday announced a new retirement income scheme and drawdown options under the National Pension System (NPS), aimed at giving subscribers greater flexibility in managing their pension savings after retirement.
In a circular dated May 15, 2026, the pension regulator announced the launch of Retirement Income Schemes (RIS) and drawdown options for NPS subscribers.
The move builds on earlier circulars and follows amendments to the PFRDA (Exits and Withdrawals under the NPS) Regulations, 2025.
Flexible Retirement Income Options
Under the new framework, subscribers will be able to withdraw a designated portion of their pension corpus in phases through different drawdown options during the decumulation phase.
The regulator said the initiative is intended to provide periodic payout choices while allowing the remaining corpus to continue generating returns through RIS.
The authority clarified that withdrawals made under the RIS framework will not affect the mandatory annuitisation requirement under NPS. Subscribers are still required to use the minimum prescribed portion of their corpus — 20 per cent or 40 per cent, depending on the category — for purchasing an annuity to ensure a lifelong pension.
The drawdown facility will be available to both government and non-government subscribers under NPS. Subscribers will have the option to receive payouts on a monthly, quarterly or annual basis.
The payout period can continue up to the age of 85 years or according to the choice exercised by the subscriber at the time of exit from the pension system.
PFRDA said the guidelines will come into effect from a date to be notified later, after the necessary system capabilities and operational framework are put in place.
The circular was issued under the powers conferred by Section 14 of the PFRDA Act, 2013.
Easing Annuity Exit Rules
The pension regulator’s decision to ease annuity surrender rules under the National Pension System (NPS) will help retirees dealing with medical emergencies or stuck with older annuity contracts carrying surrender provisions.
Friday’s announcement came a day after the regulator said in a circular that annuity service providers (ASPs) could now permit surrender of annuity policies in select cases, particularly where the annuitant or a family member was suffering from a critical illness, or where the annuity policy was issued before October 24, 2024 and already carried an explicit surrender clause.
The move marks a significant relaxation from PFRDA’s earlier position, under which surrender or cancellation of annuities was almost entirely barred except during the “free look” cancellation period.
Under the NPS structure, subscribers are required to use at least 40 per cent of their retirement corpus to buy an annuity, which then provides a regular pension income after retirement.
Once purchased, these annuity products are generally illiquid and cannot be exited midway.
Addressing Retiree Hardships
That restriction upset several retirees, especially those facing sudden medical costs or those who had bought older annuity products that originally permitted surrender in specific situations.
PFRDA acknowledged this in its latest clarification, stating that it had received “representations citing hardship faced by annuitants” because of the blanket restriction introduced last year.
The regulator added that requests had also been received to permit surrender in cases involving “critical illness of the annuitant or any family member of the annuitant”.
For retirees, this creates a limited emergency exit option from an otherwise locked pension stream.
In October 2024, PFRDA had tightened annuity rules sharply.
The circular issued at that time barred annuity service providers from allowing surrender or cancellation of annuities after purchase, except during the free-look period available immediately after policy issuance.
The regulator had argued that the restriction was necessary to ensure “long-term old-age income security for subscribers”.
That meant even policyholders dealing with severe financial stress or medical emergencies had little flexibility once the annuity was purchased.
The latest circular partially rolls back that rigidity.
PFRDA has now specifically allowed surrender in two situations:
- Critical illness of the annuitant
- Critical illness of a family member of the annuitant
- Older annuity contracts issued before October 24, 2024 that already included a surrender clause in the policy wording
However, the relaxation is not automatic.
The regulator clarified that in cases involving critical illness, the annuity service provider will first assess the request based on its own internal process and policy framework before approving surrender.
