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 Fund | 11.27% |
| SBI pension fund | 10.03% |
| HDFC pension management company limited | 10.06% |
| ICICI Prudential Pension Fund | 10.00% |
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:
- The Tier 2 account has to be opened through the “Subscriber’s POP-SP”.
- The subscriber needs to download the Annexure 1: Tier 2 Details form and send it duly filled to the POP-SP.
- 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.
- The subscriber must submit a duly filled withdrawal form form at the Points of Presence-Service Providers (POP-SP).
- The POP will begin the withdrawal request on behalf of the subscriber.
- 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.
- 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