Everything You Need to Know About NPS Tier-II

Regulated and administered by the Pension Fund Regulatory and Development Authority(PFRDA), National Pension Scheme is a reliable government-backed plan. Any individual aged between 18 years and 60 years can open the National Pension Scheme Account.
As National Pension Scheme allows individuals to make systematic investments, liquidity is never an issue. An eNPS account can also be opened if you have Pan Card or Aadhar Card.

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In this article, you will understand more about NPS Tier-II, its features, benefits, and more.

Who Should Invest In NPS?

National Pension Scheme is best suited for individuals who are unable to decide their asset allocations or do not have time to manage their investment.

An NPS is a completely government-backed scheme and any person who wants to plan their early retirement and does not wish to take high risks should undoubtedly go for it.

A salaried person who wants to take the best advantage of 80C deductions should consider National Pension Scheme.

Types Of Accounts Under NPS

  1. Tier-I Account

    • Functions as a pension account
    • Withdrawn are subject to specific restrictions
    • The account can be opened with a minimum deposit of 500 rupees
  2. Tier-II Account

    • Functions as voluntary account
    • Offers liquidity of funds through investments and withdrawals
    • Account can be opened with a minimum deposit of 250 rupees
    • Tier-I account needs to be active to open a Tier-II account

People also read: best pension plan in india

About Tier-II Account

Any Indian citizen who wishes to can opt for a National Pension Scheme account. once opted, the holder will have a Tier-I account by default.

The NPS holder can voluntarily opt for a Tier-II account. Once you get a Tier-II account, you can

  • Invest in different funds
  • Can withdraw money any time as there is no lock-in period
  • Build a huge corpus towards retirement
  • Invest 50% amount in equity funds
  • Opt for auto-choice in which funds will be allotted based on your
  • Income
  • Age
  • Risk profile

How To Open NPS Tier-II Account

You can either go for an offline or online method to open a National Pension Scheme Account

  1. Offline:

    • The account can be opened through “Subscriber’s POP-SP”
    • Download Annexure-I Tier-II detail form
    • Fill it correctly and send it to POP-SP
    • Provide bank account details
    • Withdrawals will be directly transferred to the bank account provided
  2. Online:

    • Open electronic National Pension System (eNPS)
    • Click the Tier-II activation tab
    • Fill in required details like,
      • Permanent Retirement Account Number (PRAN)
      • Date of Birth
      • PAN card
    • OTP will be generated on your registered mobile number
    • Next, fill in your bank account details
    • Validate your Aadhar card
    • Next, select your Pension Fund Manager
    • Click on the suitable investment option, that is,
      • Auto choice
      • Active choice
    • Upload all the necessary documents
    • Make a minimum payment of 1,000 rupees in the account
    • e-Sign the application
    • Your Tier-II account is successfully activated

Benefits Of Tier-II Account

Tier-II account under National Pension Scheme comes with the following benefits

  • Flexible withdrawals
  • No lock-in period
  • No exit load application
  • No annual maintenance charges
  • Easy transfer of funds from Tier-I to Tier-II as and when required
  • Nominee can be assigned

Eligibility Under Tier-II Account

  • All Indian citizens whether residing in India or not can open an NPS account
  • Age limit: 18 to 65 years
  • Separate rules for people applying between 60-65 years of age

How To Exit NPS Tier-II Account

As per PFRDA Regulations of 2015, the reason for exit from Tier-II account must be one of the following:

  1. Normal Superannuation

    • 40% of the account balance must be used to purchase an annuity
    • The annuity provides a monthly pension to the subscriber
    • Balance is returned in lump-sum
    • If the total corpus is less than equal to 2,00,000 rupees, complete withdrawal can be made
  2. Death

    • 80% of the account balance must be used to purchase the annuity
    • The annuity provides a monthly pension to the spouse
    • Balance is returned in lump-sum to the nominee
    • If the total corpus is less than equal to 2,00,000 rupees, complete withdrawal can be made by the nominee
  3. Premature Exit

    • 80% of the account balance must be used to purchase the annuity
    • The annuity provides a monthly pension to the subscriber
    • Balance is returned in lump-sum
    • If the total corpus is less than equal to 1,00,000 rupees, complete withdrawal can be made

Difference Between Tier-I And Tier-II Account Explained

National Pension Scheme

Tier I

Tier II

Eligibility

Any Indian citizen between 18 & 65 years of age

Members of Tier-I only

Lock-in Period

Till the age of 60 years

NIL

Minimum number of contributions per annum

1

Nil, not important to contribute every year

Minimum amount for account opening

Rs 500

Rs 1,000

Minimum subsequent contribution

Rs 500

Rs 250

Minimum amount contribution per annum

Rs. 6000

NIL

Fund management charge

Same as Tier-II

Same as Tier-I

Available asset classes

Same for both

Equity (E): Predominant investment in Equity market instruments. Maximum 75%

Corporate Debt (C): Scheme invests in Bonds issued by Public Sector Undertakings (PSUs), Public Financial Institutions (PFIs), Infrastructure Companies and Money Market Instruments

Government Securities (G): Scheme invests in Securities issued by Central Government, State Governments and Money Market Instruments

Alternative Investment Funds (A): In this asset class, investments are being made in instruments like CMBS, REITS, AIFs, etc.

Tax benefits

For Tier-I investments, tax is deductible within the total ceiling of 1.5 lakh under Section 80CCD (1)

No tax benefit

Allowed up to Rs.50,000 as deductions towards Tier-I contributions under 80CCD 1(B)

Conclusion

National Pension Scheme is a reliable government-backed plan which creates a financial corpus for an individual even after retirement. With more amendments and improvisations being made by the government, this scheme is considered simple and easy than other pension schemes in the market.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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