The National Pension Scheme, for ease of implementation and differentiation, has been divided into two distinct tiers, 1 and 2. While Tier 1 is the most basic form of NPS Account, Tier 2 is an account that offers greater flexibility in terms of withdrawal rules. Subscribers of NPS Tier 2 Account are free to withdraw their money as and when they want and without paying any penalty fee. The Tier 2 Account is a voluntary contribution scheme and hence the flexibility that is attached to it. The Tier 2 variation of the NPS scheme came to be launched in December 2009 and is a pure retirement savings product like its counterpart – NPS
Features of Tier 2 NPS Account
Here are few significant features of Tier 2 NPS Account which differentiate it from the Tier 1 NPS account.
- Tier 2 NPS Account can be looked at as a liquid version of the NPS Tier 1 Account since there is flexibility to withdraw with the subscriber
- No penalty fee is charged from the subscriber in case he/she withdraws from the NPS account prematurely
- Contributions towards the Tier 2 NPS Account can be made using your permanent retirement account number, PRAN
- Choice of three funds to invest your money in. However, money is partially put in two or more of these funds
- Customers can choose between Equity Funds, Government Securities and Fixed Income Instruments other than Government Securities
- Fund option can be chosen by you else it goes into the auto-mode which invests in funds based on your job profile and age
- Since, Tier 2 NPS Account does not have a locking period for funds invested in the same, there is no tax rebate also that applies. Hence, money invested in NPS Tier 2 Account is not tax deductible under section 80C of the Income Tax Act
- Tier 2 NPS Account is a good savings and investment option for customers who are looking for an instrument which is a medium-term investment tool
- Only 50% of the fund can be invested in equity-fund. This feature dilutes the cost effectiveness of this financial tool as against other means of investment
- There is no limit on the number of times you can withdraw money from the NPS Tier 2 Account
- Nomination facility is available with this account
- Facility of one-way money transfer from Tier 2 to Tier 1 NPS Account
Eligibility Criteria for NPS Tier 2 Account
In order to obtain an NPS Tier 2 Account, following is the eligibility criteria that needs to be fulfilled.
- Any citizen of India, resident or non-resident can join the National Pension System and can obtain the NPS Tier 2 Account
- An active Tier 1 NPS Account is a prerequisite of obtaining a Tier 2 Account
- Individual needs to be 28-60 years of age on the date of submission of NPS form
- Non Resident Indians are also eligible to register for the NPS scheme
Documents Required for Opening NPS Tier 2 Account
The only criteria required for obtaining NPS Tier 2 Account is an existing Tier 1 Account. Hence, the KYC documents are already submitted. These are –
- Duly filled registration form
- Identity Proof of applicant
- Address Proof of applicant
- Age or Date of Birth proof of the applicant
PRAN Card is the only valid document required for opening an NPS Tier 2 Account.
Withdrawal Process of the NPS Tier 2 Account
In order to redeem funds from your NPS Tier 2 Account, following is the process that needs to be followed.:
- Duly filled UOS-S12 form for withdrawal
- Redemption amount may vary depending upon the applicable NAV at the time of redemption
- Funds get transferred from trustee’s bank account to subscriber’s account in a matter of maximum 3 working days
- You can use NPS Calculator to know how much pension amount will you get.
Getting Registered:
- An application form for the NPS can be acquired from any Point of Presence-Service Provider (POPSP) or can be downloaded from the NSDL website.
- Applicants require the regular KYC documents for identity and address proof – Aadhar card, PAN card, voter ID, driving license, etc.
- To apply online, applicants need to log on to the NSDL website (enps.nsdl.com) and enter their Aadhaar card number and registered mobile number.
- Once you have done that, an OTP will be generated and sent to your mobile number. Once you have entered the OTP on the website, upload a scanned copy of your signature and your photograph.
- An initial contribution of Rs.500 has to be made either by debit/credit card or online banking.
- After make the initial contribution, a PRAN (Permanent Retirement Account Number) will be allotted to you.
- Next you will receive a welcome kit – PRAN card with IPIN, TPIN, and the details of the NPS scheme.
- For those doing the process offline, the form needs to be filled with one’s photograph and signature. The form should be then posted to the Central Recordkeeping Agency at: Central Recordkeeping Agency (eNPS) NSDL e-Governance Infrastructure Limited, 1st Floor, Times Tower, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai – 400 013
- Linking Aadhaar card to your registered mobile number will increase the pace of the process.
