NPS systematic payout rate vs unit redemption: How much you can get with ₹1 crore

For years, National Pension System (NPS) subscribers have had only one option for monthly payouts: buying an annuity. They now have two more flexible periodic payout options on exit.

Under the new option, however, there is no change in the rule mandating annuity purchase with the 40% or 20% (under MSF) of the corpus.

The new scheme offers two drawdown options: SUR and SPR.

The following section of the article explains both options, along with an example, of how much monthly payout one can expect if the amount invested under RIS is ₹1 crore.

Systematic Unit Redemption (SUR)

In this, you can withdraw an equal number of units every month till age 85. Let's understand:

Suppose your corpus is ₹1 crore and the NAV at the time of opting for SUR is ₹10.

• Total units: 10,00,000

• Age of exit: 60 years

• Drawdown period: 25 years

• Payout frequency: monthly

The number of units that can be redeemed per month will be decided based on the following formula:

Therefore, the number of units per month = 10,00,000/25x12 = 3333 units per month

Here, one should take note of an important point:

• The NAV cannot be predicted in advance. It may vary on a case-by-case basis, depending on the fund’s performance during your investment period.

Systematic Payout Rate (SPR)

This is the default drawdown option provided under RIS. Systematic payouts (SP) will depend on Systematic Payout Rate (SPR) calculated using the following formula:

SPR = 1 ÷ (85 − current age).

The SPR will be locked for 12 months and apply to the corpus value on the subscriber's birthday.

The systematic payouts will be reset on every birthday of the subscriber.

For a subscriber exiting the system at age 60 and selecting to drawdown through SPR, up until the drawdown end age of 85 years, the age-wise SPR will be as follows:

Under both SPR and SUR, the corpus will end at age 85.

Suppose your withdrawable corpus is ₹1 crore and you use it to buy an annuity under the prevailing norm. Assuming an annuity rate of 6.5% per year, you can receive ₹54,166 per month till the drawdown end age.

Under SP, however, the starting SPR of 4% will pay only ₹33,333 per month at the beginning of the drawdown. But there are two advantages here compared to the prevailing option:

• In the prevailing option, your entire amount is invested in an annuity and earns only a limited return.

• In RIS, the corpus remaining after each drawdown will continue to earn returns. Over time, the monthly payout can increase significantly as the SPR rises with age.

For instance, if the pension fund performs and your corpus remains at ₹1 crore at age 75 when SPR rises to 10%, your monthly payout could be ₹83,333.

However, just like a systematic withdrawal plan (SWP) of a mutual fund scheme, the monthly payout is not fixed under RIS. It depends largely on the value of your coprus, which depends on returns generated by the fund manager over time.

Please note you are not allowed to resume NPS contributions after starting the drawdown. under SUR or SPR. If you live beyond age 85, RIS will not help. You will need other options.

Lastly, the monthly payout is not assured like an annuity plan. It is exposed to market risks and is therefore uncertain, which you may not want in retirement.