NPS Tier 2 Account Advantages and Disadvantages

The NPS Tier 2 Account is a voluntary savings facility linked to the National Pension System (NPS) in India. It offers flexible investment options and easy withdrawals, catering to those seeking an additional investment option. However, the NPS Tier 2 comes with its own set of advantages and disadvantages. You can learn more about them in this article.

Read more
  • Peaceful Post-Retirement Life

  • Tax Free Regular Income

  • Wealth Generation to beat Inflation

We are rated~
rating
58.9 Million
Registered Consumer
51
Insurance Partners
26.4 Million
Policies Sold
In-built life cover

Invest ₹6,000/month & Get Tax Free Monthly Pension of ₹60,000

Get the best returns & make the most of your Golden years

+91
Secure
We don’t spam
Please wait. We Are Processing..
Your personal information is secure with us
By clicking on "View Plans" you agree to our Privacy Policy and Terms of use #For a 55 year on investment of 20Lacs #Discount offered by insurance company
Get Updates on WhatsApp
We are rated~
rating
58.9 Million
Registered Consumer
51
Insurance Partners
26.4 Million
Policies Sold
Pension Funds
Pension Funds Most Popular
Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
13,041 Cr
Returns
24.07%
Returns
29.02%
Highest Return
Returns
20.47%
Get Details
7,665 Cr
Returns
29.03%
Returns
29.68%
Highest Return
Returns
20.1%
Get Details
4,680 Cr
Returns
24.01%
Returns
25.73%
Highest Return
Returns
18.69%
Get Details
40,535 Cr
Returns
20.41%
Returns
24.51%
Highest Return
Returns
17.1%
Get Details
6,630 Cr
Returns
22.53%
Returns
24.48%
Highest Return
Returns
16.97%
Get Details
14,538 Cr
Returns
17.69%
Returns
20.91%
Highest Return
Returns
15.13%
Get Details
3,486 Cr
Returns
18.35%
Returns
20.7%
Highest Return
Returns
13.94%
Get Details

What is an NPS Tier 2 Account?

An NPS Tier II account is a voluntary investment account associated with your National Pension System (NPS) account. Unlike Tier I, which is mandatory for retirement savings, Tier II offers more flexibility for your savings.

However, contributions to Tier II do not qualify for tax deductions, unlike Tier I contributions.

Features of an NPS Tier 2 Account

Below are the features of the NPS Tier 2 account:

Feature Description
Contribution Type Voluntary
Eligibility Available to Indian citizens and NRIs aged 18-70 years.
Minimum Contribution
  • Initial contribution: ₹1,000; 
  • Subsequent contributions: ₹250 per transaction.
Contribution Flexibility No minimum contribution limit during the year. Change contribution amount annually.
Maximum Contribution No upper limit.
Investment Options Similar to NPS Tier 1: Equity (E), Corporate Bonds (C), Government Securities (G), and Alternative Investments (A).
Investment Choice Select from a variety of Pension Fund Managers (PFMs) and investment options (equity, debt, etc.).
Withdrawal No lock-in period. Funds can be withdrawn anytime.
Tax Benefits No tax benefits on contributions.
Account Maintenance No annual maintenance charges.
Account Transfer Can be transferred from one POP (Point of Presence) to another.
Additional Features - Nominate a beneficiary to receive account proceeds. - Transfer funds from Tier II to Tier I account.
Regulator Regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

People also read: best pension plan in india

Advantages and Disadvantages of an NPS Tier 2 Account

NPS Tier 2 accounts offer flexibility, tax benefits, and accessibility. However, limitations, including no pension payouts, tax implications, and investment restrictions, pose challenges. Below, you can see the advantages and disadvantages of engaging with NPS Tier 2 for retirement planning: 

Advantages Disadvantages
Liquidity: No lock-in period, funds can be withdrawn anytime. No Tax Benefits: Contributions are not eligible for tax deductions.
Flexibility: No restrictions on withdrawals. Lower Priority: Often considered as a secondary option compared to Tier 1.
Low Cost: Low fund management charges similar to Tier 1. No Mandatory Savings Discipline: Lack of lock-in period may discourage long-term savings discipline.
Professional Management: Managed by professional fund managers. Tax on Gains: Withdrawals are subject to capital gains tax.
Flexible Contributions: No upper limit on contributions and minimum contribution amounts are low. Not Ideal for Long-Term: May not be the best option for long-term retirement savings due to the lack of tax benefits.
Ease of Access: Can be easily accessed for short-term financial needs. Separate from Tier 1: Separate from Tier 1 account, requiring different management and monitoring.

Eligibility Criteria to Open NPS Tier 2 Account

There are two main criteria to open an NPS Tier II account:

  • Existing Tier I Account: You must already have an active Tier I NPS account and a Permanent Retirement Account Number (PRAN) assigned. Tier I accounts are mandatory for certain demographics, but Tier II is voluntary.

  • Age and Residency: You must be an Indian citizen (Resident/ NRI/ OCI) between 18 and 70 years of age. 

NOTE: There is no upper age limit to continue contributing to an existing Tier II account once you have opened it, but you cannot open a new one after 70.

People also calculate: NPS Calculator

How to Open an NPS Tier 2 Account?

There are two ways to open an NPS Tier 2 account:

  1. Online:

    • Visit the eNPS website and click 'National Pension System'.

    • Click on 'Tier 2 Activation' in the pop-up.

    • Enter your PRAN number, Date of Birth, PAN number, and Captcha.

    • Click 'verify PRAN'.

    • After PRAN verification, your Tier 2 account will be activated.

  2. Offline:

    • Use the 'Subscriber's POP-SP' to open a Tier 2 account.

    • Fill out the Annexure 1 Tier 2 information form and send it to the POP-SP.

    • Submit your bank details for direct withdrawal from the NPS Tier 2 account.

    • After PRAN account setup, you will receive a login ID and password to access your NPS account online.

In Conclusion

NPS Tier 2 presents a flexible and accessible investment avenue with tax advantages. However, the absence of guaranteed returns, tax implications, and limited fund choices underscore the need for careful consideration. Balancing its advantages and disadvantages is the key to informed retirement planning.

Frequently Asked Questions

  • Does Tier 2 NPS have tax benefits?

    No, Tier 2 NPS contributions don't offer any tax benefits. Unlike Tier 1, you can't deduct your contributions from taxable income.
  • Is NPS Tier 2 better than FD?

    Not necessarily. Tier 2 offers flexibility and higher potential returns than FDs but comes with market risks and no guaranteed returns. It depends on your investment goals and risk tolerance.
  • Is NPS Tier 2 good for the short term?

    No, Tier 2 NPS isn't ideal for short-term goals. It's meant for long-term wealth creation due to lock-in periods and potential market volatility.
  • How the policyholder may avail NPS tier 2 tax benefit?

    You can not avail of tax benefits under Section 80C and 10(10D) on your contributions to the NPS Tier 2 account.
  • Can a private employee enjoy the NPS tier 2 tax benefit?

    No, private employees cannot enjoy tax benefits on contributions made to their Tier 2 NPS accounts.
  • How can I make a withdrawal from an NPS tier 2 account?

    To withdraw from the NPS Tier 2 account, you must submit a duly filled UOS-S12 (form) to the associated POP-SP (Power of presence- service provider).
  • Can I enjoy NPS tier 2 tax benefits in case of withdrawal from NPS tier 2 account?

    In case of withdrawal from an NPS tier 2 account, you cannot avail of the NPS tier 2 tax benefit.
  • Are NRIs eligible to open an NPS Tier 2 account?

    Yes, an NRI is eligible to open an NPS Tier 2 account. The country in which you are residing does not matter. You just need to be a citizen of India. If your citizenship is changed, your account will be closed.
  • Who is the regulator for NPS?

    Pension Fund Regulatory and Development Authority is an authority set up by the Government of India, which regulates pension funds to protect the interests of subscribers. All the activities, including withdrawal from NPS tier 2 and NPS tier 2 tax benefits are operated by its regulator.
  • Are withdrawal from NPS tier 2 proceeds provided through cash or demand draft?

    No, withdrawal from NPS tier 2 proceeds are credited directly to the bank account of the subscriber. Therefore, the subscriber must have a bank account before creating an NPS account.
  • Who is a POP-SP, and what is their role?

    Points of Presence are the initial interaction points that provide several customer services to the NPS subscriber. They act as collection points and extend their services for withdrawal from NPS tier 2 accounts.
  • What are the documents that are needed to be submitted for opening an NPS account?

    Several documents are needed to open an NPS account-
    • Subscriber Registration Form

    • Identity Verification 

    • Address Proof

    • Age/Date of Birth Proof

    Identity, address, and DOB can be verified through a single document, i.e., an Aadhar card but sometimes separate documents are required.

  • Can I open a tier 2 account without a tier 1 account?

    No, you cannot open a Tier 2 account without a Tier 1 account. The Tier 2 account is considered an add-on feature to the Tier 1 account. In order to activate a Tier 2 account, you must already have a Tier 1 account established and possess a Permanent Retirement Account Number (PRAN).

*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.
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^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.

Secure Your Retirement Today
Start Investing ₹6,000/month
Get Pension ₹60,000/month+
Including Life Cover
View Plan
Pension Plans
+Standard T&C Applied
Secure your Retirement today!
START INVESTING
₹6,000/month
GET PENSION
₹60,000/month+
Heart
INCLUDING LIFE COVER
+ Standard T & C Apply*
Pension Calculator
Pension Calculator
How much do you need to save for retirement?
₹ 20,000
₹ 25,000
₹ 30,000
Monthly Expenses in 2024
Edit Done
Your expense go up every year by
Today 2024 Your expenses today in 2023, at the age of 34 Yrs
Your expenses in 2043, at the age of 55 Yrs
For a monthly pension of ₹77,300
you need to invest
₹14,300/month
Calculated as per past performance of 15%
View Plan Recalculate?

Pension plans articles

Recent Articles
Popular Articles
Which is Better: UPS vs NPS vs OPS

19 Sep 2024

In India, the government provides several retirement plans
Read more
Tata AIA Saral Pension Plan

12 Sep 2024

Tata AIA Saral Pension Plan is a retirement solution that offers
Read more
Reliance Life Saral Pension

10 Sep 2024

Reliance Life Saral Pension is a retirement plan designed to
Read more
PNB MetLife Immediate Annuity Plan

10 Sep 2024

PNB MetLife Immediate Annuity Plan is a retirement solution that
Read more
Unified Pension Scheme

28 Aug 2024

The Unified Pension Scheme (UPS) is a new pension scheme
Read more
SBI Annuity Deposit Scheme Calculator 2024
  • 08 Jun 2021
  • 29021
The SBI Annuity Deposit Scheme offers monthly annuity payments to investors who invest a lump sum amount. After a
Read more
Buy the Best Annuity Plans of 2024
  • 10 Dec 2015
  • 125743
10 mins read Annuity plans in India are the financial products that provide you with a guaranteed, regular
Read more
How to Get a 50K Pension Per Month?
  • 15 Jun 2022
  • 14652
As we grow older, job opportunities tend to decrease. However, the need for capital does not. With inflation
Read more
Vridha Pension
  • 23 Feb 2023
  • 5969
Vridha Pension is a social welfare initiative implemented by the Uttar Pradesh government in India. It aims to
Read more
NPS Calculator 2024
  • 17 Jan 2017
  • 351467
NPS Pension Calculator is a financial tool that calculates potential returns on the National Pension Scheme, by
Read more

top
Close
Download the Policybazaar app
to manage all your insurance needs.
INSTALL