What is NPS Tier 2 Account in India

Over the years, the world has witnessed an improvement in human life expectancy, currently at an average of around 73 years. With increased longevity comes the added years in retirement. Hence, planning for life after retirement has become even more important.

In India, most people retire around the age of 60-65. To help them plan for their post-retirement years, the government-sponsored National Pension System (NPS) is one of the few social security schemes. Initially launched only for government employees, the pension scheme was later opened to all sections of the population. Today, any citizen of India between 18 to 60 years of age can subscribe to the NPS.

NPS is a great tax-saving retirement fund and the perfect long-term investment tool. Under the NPS, there are two types of accounts - Tier I and Tier II, the former being mandatory and the latter, a voluntary or additional one.

What is an NPS Tier II account?

The NPS Tier II is a voluntary account that can be opened only if you have a Tier I account. When opening an NPS Tier II account, you are required to make a minimum contribution of Rs 1,000. However, there is no mandatory annual contribution requirement in a Tier II NPS account, unlike a Tier I account where a subscriber must contribute a minimum of Rs 1,000 each year. The only thing to note is contributions made to a Tier II NPS account must be in multiples of Rs 250, with no cap on the maximum contribution made.

A Tier II NPS account offers greater flexibility in terms of withdrawal, and no exit load is charged when you withdraw funds from your Tier II NPS account. However, NPS Tier II investments are not tax-free.

When you put your money into the National Pension Scheme, you have four asset classes to choose from to invest your corpus; these are equity instruments, government securities, corporate bonds, and alternative investment funds. Again, there are two ways to manage asset allocation: active choice or auto choice. In active choice, you get to decide and customise your portfolio depending on your risk profile and knowledge of asset classes. The NPS offers the auto choice option whereby you can go with an automatic allocation portfolio for those who do not wish to get into the portfolio designing process.

Benefits of an NPS Tier II account

A few key benefits of Tier II NPS account are listed below:

  • No additional annual maintenance charges are applicable

  • An excellent way to save for your day-to-day needs

  • You can withdraw money at any point in time

  • The funds can be moved to the primary pension account (Tier I) at any point

  • No minimum balance is required in an NPS Tier II account

  • Separate nomination facility available

  • You have the option to choose a different investment pattern from Tier I

Eligibility to open an NPS Tier II Account

Listed below are the eligibility criteria for opening an NPS Tier II account:

  • Should be an Indian resident between 18- 60 years of age

  • Should have a Tier I account and a PRAN number allotted

  • A minimum amount of Rs 1000 to be deposited when opening a Tier II account

As Covid-hit people looked for security in their golden years, both NPS and Atal Pension Yojana surged 30% in the number of subscribers and value.

Click here to open an NPS Account now!

The NPS Fund managers' fees have been increased from 0.01 percent to 0.09 percent. This is a minimal increase to ensure that the pension fund is financially sustainable for management. NPS fund managers may now invest in IPOs and select from over 200 stocks (earlier than the top 100 stocks).

You can read more on how to claim tax benefits on Tier I and Tier II NPS account here.

*Terms and Conditions apply.  The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action.