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Understanding The Background of “What is Tier 1 and Tier 2 in NPS”

What is Tier 2 in NPS? | Understand NPS Tier2 and Tier 1 Account 2021

Introduction

National Pension Scheme (NPS) was launched by the Central Government of India to create a social security mechanism for all citizens.
NPS seeks to fill the gap with regards to creating a retirement corpus, wherein the NPS subscribers cannot normally withdraw before retirement. Further, a part of the accumulated corpus at the time of the retirement must be mandatorily invested to purchase an annuity to ensure regular income post-retirement.
There are 2 types of accounts NPS Tier 1 and NPS Tier 2. Your investment in the Tier 1 account is locked in until the age of 60.
Before the age of 60, you can make partial withdrawals for particular purposes or you can go in for a premature exit.
Now let’s discuss about “What is the reason of NPS tier2 account?”, “What is Tier 2 in NPS?” and “How to Activate Tier 2 Account?”

Also Read NPS Contribution: Online and Offline | Contribution by employer 2020-21

What is Tier 2 in NPS?

NPS Tier2 account is a voluntary account which you can open only if you have an existing NPS Tier 1 account.
As compared to a NPS Tier 1, these accounts offer more flexibility in terms of deposits and withdrawals.
You can open a Tier 2 account with a minimum investment of Rs 1000/-.
But, unlike a Tier 1 account, it’s not mandatory to invest at least once every year in a Tier 2 account.
Also, you can withdraw from this account anytime just like a savings account.

Read NPS Tier 2 Tax benefits for government employees

Top performing Tier 2 Account

Pension Fund Manager (PFM)approx. 5 Year returns
LIC Pension Fund11.27%
SBI pension fund10.03%
HDFC pension management company limited10.06%
ICICI Prudential Pension Fund10.00%
Source NPS

How to Activate Tier 2 Account?

Any subscriber, who has an active NPS Tier 1 account can apply for a Tier 2 account.

Offline Process

The subscriber has to follow the following steps to apply offline:

  1. The Tier 2 account has to be opened through the “Subscriber’s POP-SP”.
  2. The subscriber needs to download the Annexure 1: Tier 2 Details form and send it duly filled to the POP-SP.
  3. You must provide your bank account information to open a Tier 2 account because any withdrawals will be directly transferred to your bank account.

Online Process

Read NPS Tier 2 Activation Procedure Online and Offline | Is NPS Tier 2 Taxable?

Tier 2 Withdrawal

Tier 2 Account offers liquidity in the form of easy redemption of money at any point of time.

Offline

Money lying in a Tier 2 Account can be withdrawn in the following way.

  1. The subscriber must submit a duly filled withdrawal form form at the Points of Presence-Service Providers (POP-SP).
  2. The POP will begin the withdrawal request on behalf of the subscriber.
  3. Within 3 days after the day of form submission, The money shall be transferred from the trustee’s bank account to the subscriber’s registered bank account.
  4. The redemption funds shall depend on the amount of investment made and the applicable NAV at the time of withdrawal.

Online

The subscriber can also make a withdrawal request online through their NPS Account user id. However, such applications need to be verified by the associated POP.

Read NPS Tier 2 Withdrawal | Rules | Taxation | Procedure | Time | Charges 2021

What is Tier 1 Account?

NPS Tier 1 Account is the account that has a lock in till the retirement of individuals.
This account aims to build a large corpus through the disciplinary and systematic contributions by the subscriber and by making investments in the various asset classes for generating returns on investment.

Read National Pension System : A Complete Guide for Retirement Plan

Difference Between NPS Tier 1 and Tier 2

Read NPS Tier 2 vs Tier 1

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