National Pension Scheme Tier-II Account

The National Pension Scheme is a scheme that is retirement oriented and has been introduced by the government of India. Initially, the NPS was meant for government employees; however, later on, it was made available for the public domain as well. The NPS is opulent amongst the investors who are looking forward to creating long-term corpus with regular investments. When investing in the NPS, two types of investment accounts choice is given that is Tier-I and Tier-II accounts.

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Quick Brief: NPS Accounts

Anyone who needs to subscribe to the NPS should open this account compulsorily.  However, the NPS Tier-II account is optional. NPS Tier-I account is the primary account and the NPS Tier-II account can only be opened after the Tier-I account has been opened.

The subscribers to the NPS Tier-II account have the liberty to choose any fund managers listed within the NPS.  Listed below are the eight funds managers in the National Pension Scheme:

  • Aditya Birla Sun Life Pension Management Limited
  • LIC Pension Fund
  • HDFC Pension Management Company Limited
  • ICICI Prudential Pension Funds Management Company Limited
  • Kotak Mahindra Pension Fund Limited
  • Reliance Pension Fund
  • SBI Pension Funds Private Limited
  • UTI Retirement Solutions Limited

The UTI Retirement Solutions Limited, LIC Pension Fund and SBI Pension Fund are the only fund managers who manage the pension contribution of the government employees within NPS.

The Tier-II NPS is a voluntarily account that can only be opened when one already has a Tier-I account opened. The NPS Tier-II account permits flexibility of investment and withdraws into the scheme. Anyone can withdraw from the NPS Tier-II investment whenever required with no limits. Besides, no exit load is charged when the funds from the NPS Tier-II account are withdrawn. There are no minimum yearly contribution or balance requirements for the NPS Tier-II account.

Eligibility Criteria to Open NPS Tier-II Account

To open the NPS Tier-II account, the following is the eligibility criteria:

  • An individual needs to be a citizen of India. Moreover, even an NRI can also open the NPS account till the time they are citizens of India.
  • An individual needs to be between 18 years and 65 years of age. Besides, special rules will apply if one is opening a Tier-I account from 60 to 65 years of age.
  • The individual should have a Tier-I NPS account that is active. One can also simultaneously open both the Tier-I and Tier-II account.

There is no minimum or maximum annual investment cap for the same. The minimum initial contribution is Rs 1000 and the subsequent contribution can be a minimum of Rs 250. However, for the government employees, the lock-in period is 3-years and no lock-in period for the private sector employees. The returns are on the premise of the asset allocation as well as the pension funds as chosen by an individual.

Benefits of NPS Tier-II Account

The following are the key benefits of opening the NPS Tier-II account:

  • No extra yearly maintenance charge is to be paid.
  • The account can be used to fund any emergency or day to day expenses as the account permits flexible and easy withdrawals with no exit load.
  • Whenever one feels like can transfer the funds from the NPS Tier-II to the NPS Tier-I account.
  • In case of demise, one can easily nominate an individual that would eventually receive the account proceeds.
  • Investing in the NPS Tier-II account can be done in the same way as done in the NPS Tier-I account.

How to Open the NPS Tier-II Account?

Anyone can open the NPS Tier-II account both online and offline. Below discussed are the steps to open the account in both ways:

NPS Tier-II Account Online

The following are steps to open the NPS Tier-II account online:

  • Visit the official website of the eNPS.
  • Click on theNational Pension Scheme’ tab.
  • Next, click on the ‘Tier-II Activation’ tab.
  • Enter the Permanent Retirement Account Number, Permanent Account Number, birth date and captcha.
  • Click on the ‘Verify PRAN’ tab.
  • Once the details of PRAN are verified with the Tier-I account only then the NPS Tier-II account will be activated.

NPS Tier-II Account Offline

Individuals can open an NPS Tier-II account when they have a Tier-I account. The following are the steps to open the Tier-II account offline:

  • To open the Tier-II NPS account, the applicant needs to visit the nearest NPS Point-of-Presence that is a branch designated by the bank.
  • The applicant needs to complete the Tier-II form.
  • The bank details should also be submitted. In case of any withdrawals, the amount will be sent to the bank account directly.

Documents Required to Open the NPS Tier-II Account

The only criteria that are important for opening the NPS Tier-II account is an existing Tier-I account. The following are the KYC documents that are submitted already listed below:

  • Filled NPS registration form
  • Applicants’ identity proof
  • Applicants’ address proof
  • Applicant's age proof

The PRAN card is a valid document that is required for opening the NPS Tier-II account.

Investment into the NPS Tier-II Account

When investing in the NPS Tier-II account, the following two choices of the investment strategy are given:

  • Active Choice: With this one has the option to choose between the investment funds available and then invest.
  • Auto Choice: With this one can select the risk profile and the scheme allocates the investment to various funds on the premise of risk profile and age selected automatically.

Each year, as the individual gets older, the investments are then reallocated so that the equity exposure is reduced and the debt exposure is increased. This permits to protect of the returns from the market volatilities. The following are the four funds available for investment:

  • Asset Class A: It invests in alternate instruments.
  • Asset Class C: It invests in the instruments of fixed income apart from the government securities.
  • Asset Class E: It invests in equity.
  • Asset Class G: It only invests in government securities.

The investments into the Tier-II NPS account are likely to be continued until an individual reaches 60 years when the scheme matures. One can defer the maturity by another ten years but on such deferment, further investments are not required.

Withdrawal Process of the NPS Tier-II Account

To redeem the funds from the NPS Tier-II account, the following process should be followed:

  • Field form of UOS-S12 for the withdrawal.
  • The redemption sum will differ depending upon the NAV applicable during redemption.
  • The fund will be transferred from the bank account to the account of the subscriber in three working days.

Closing the NPS Tier-II Account

The individual needs to submit a request for the closure of the NPS Tier-II account by simply logging into the NPS account online. Moreover, one can also submit a closure form of the account to the nearby NPS Point-of-Presence.

Taxation on the NPS Tier-II Account

The National Pension Scheme Tier-II is entitled to tax deduction within Section 80C for the government employees. There is no tax deduction when it comes to private-sector employees. Moreover, the gains in Tier-II remain taxable at the slab rate.

Written By: PolicyBazaar - Updated: 13 August 2021

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