NPS Tier 2 Account: How to Apply, Eligibility & Benefits

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To live a dignified and comfortable second inning, retirement planning at the right stage and time is crucial. While everyone wants a continuous flow of income even after they retire, investing in suitable retirement plans is still alien to many. In order to make retirement planning simpler and help senior citizens secure their golden years financially, the government launched the NPS, National Pension System. Initially, this social security scheme was only limited to the government employees of India. However, later on, it was made open to all the Indian citizens who wished to make investments for a secure future. Now, any individual between the age of 18 to 60 years can begin their investment in NPS.

What is Tier 2 in NPS?

There are two types of accounts in the National Pension System - Tier l and Tier II. There are several differences between these two accounts. Tier l account is mandatory and Tier ll is a voluntary account for the customers. In order to open a Tier ii account, one must have a Tier l account. Let's understand it in detail.

Striking Features of NPS Tier 2

NPS Tier 2, being a leading investment plan, has several features for the customers. These are –

  • This is a voluntary account and not a mandatory one
  • Investment can begin at just ₹1000 per year
  • Anyone between the age of 18 to 60 years can open this account
  • People with a Tier ii account automatically must also have a Tier I account
  • Account can be opened via both offline or online method
  • This is a high returns investment plan
  • Investment in Tier 2 account is liable for income tax
  • The contributions added must be a multiple of ₹250
  • There are no mandatory annual contributions to be made

Benefits of Tier 2 NPS account

The National Pension System has been planned by the government in order to benefit the Indian citizens with retirement benefits. There are a whole set of benefits you get to enjoy under this scheme, like –

  • Easy Liquidity
    One can withdraw this investment anytime as per their preference. So, this facility makes it quite flexible for the users to customise their investment plans as per their needs.
  • Flexible Investment Plan
    Unlike many other investment plans, the Tier 2 NPS offers a lot of flexibility. Apart from easy withdrawals, you can also have a different investment pattern from NPS Tier 1.
  • No Exit Charges
    There are no charges levied on exiting the National Pension System. So, you need not pay any extra cost for willfully leaving the scheme.
  • No Annual Charges
    In order to continue the services, no annual charges are levied on the citizens. Hence, you do not have to make any other financial arrangements other than your preferred investment in the account.
  • No Minimum Balance to be maintained
    You need not maintain any minimum balance in the account. An account holder can invest any amount as per their preference.
  • Pick a Nominee
    You get to assign a nominee who can receive the amount when mature.
  • Transfer of Funds
    All the funds in Tier 2 can be shifted to the Tier 1 account anytime as per your will.
  • Allows Bigger Investments
    There is no limitation on the maximum investment that one can make to the Tier 2 account of NPS

Understanding the Eligibility criteria for an NPS Tier-2 Account

There are a few simple eligibility criteria that everyone has to fulfil in order to apply for the NPS Tier 2 account. These include –

  • Only Indian citizens can apply for this scheme
  • One must be of any age between 18 to 60 years
  • To open a Tier 2 NPS account, one must have a Tier 1 account
  • In order to open the account, an investment of ₹1000 is mandated
  • Complying with 'Know your Client' compliances of the registration form is essential to successfully become eligible for the account

Steps to Open an NPS Tier 2 Account¹

Opening an NPS Tier 2 account is a matter of a few steps. You can easily open the account as per your comfort and preference. Both online and offline methods are available. These are –

  • Online
    1. Visit the official website, eNPS
    2. Click on the National Pension System
    3. Go for Tier 2 account activation
    4. Enter your PRAN number as asked along with the birth date and PAN number
    5. Verify PRAN and you will get an OTP on your registered mobile number
    6. Verify OTP and fill in all blank details and click “Validate Aadhaar"
    7. Now click on the 'verify PRAN' option
    8. Next, you need to pick a pension fund manager and investment choice
    9. Then you need to update your nominee details and proceed
    10. Upload your PAN and cancelled cheque to proceed
    11. Now you will need to make a contribution to the Tier II account with a minimum amount of ₹1000.
    12. You will get a receipt for your contribution
    13. Now you will have to e-sign the application using your Aadhaar number. After entering the number, you will receive an OTP which you need to enter.
    14. After e-signing, you can download the form and send it to the concerned department.

Source:
https://www.livemint.com/money/personal-finance/how-to-open-nps-tier-ii-account-online-step-by-step-guide-11597027152175.html

  • Offline
    1. To open an NPS Tier 2 account via the offline method, you need to use 'subscriber's POP-SP' which is mostly your bank
    2. Fill up Annexure I of CSRF-1
    3. Submit it to the POP-SP
    4. Along with the form, also submit the bank details and minimum contribution of ₹1000 to successfully open the account

Source:
https://npscra.nsdl.co.in/subscribers-corner-knowledge-centre.php¹

What is the Tier 2 NPS return rate?²

The range of interest rate for the top-most funds can be summarised in the table below

Asset

1-year

5-year

10-year

Equity

15.19%-17.92%

13.05%-15.83%

10.35%-10.58%

Corporate Bonds

12.71%-16.36%

9.55%-10.17%

9.86%-10.60%

Government Bonds

12.61%-13.42%

10.40%-12.00%

9.59%-10.07%


What are the minimum and maximum investments in Tier 2?

In order to open a Tier 2 account of NPS, you need to make a minimum investment of ₹1000. After the opening of the account, no minimum balance is required. There is no cap on the maximum investment that you can make in the NPS Tier 2 account. Also, there is complete flexibility in withdrawing money as and when required without any charge.

How to withdraw from Tier 2 NPS account

Withdrawing from the NPS Tier is quite easy and can be done anytime since there is no restrictions on this account. You can do so via either offline or the online method. Here's how you can do it –

  • Online Method
    1. Visit the CRA NSDL website
    2. Enter User ID and Password and login
    3. Enter a few details like percentage of withdrawal, the details of annuity percentage and annuity provider, details of the nominee, bank details, etc.
    4. Post confirmation on the website, the amount will reflect in your account.
  • Offline Method
    1. You need to duly fill out a UOS-S12 form and submit it to the associated POP-SP, the Point Of Presence- Service Provider (most likely your bank)
    2. Attach the supporting documents along with the form to be processed further
    3. In three days, the fund will be transferred to the registered bank account as per the CRA system

Source:
https://www.npstrust.org.in/content/tier-ii-withdrawal#:~:text=In%20order%20to%20withdraw%20from,registered%20in%20the%20CRA%20system

The login process for Tier 2 NPS account

To log in to your NPS Tier 2 account, you need to first activate the Tier 2 account by logging in on the CRA NSDL website and following the steps that are already mentioned above. Once it is activated, you can get access to the account by simply logging into the eNPS website using your PRAN id.

How Tier 2 NPS account is different from Tier 1 NPS account?

Tier 1 and Tier 2 are the two types of accounts under the National Pension System. However, the two are different on several notes. Let's have a look at their differences –

Tier 1

Tier 2

It is a mandatory account

Tier 2 is a voluntary account and to open a Tier 2 account, having a Tier 1 account is mandatory

Minimum investment required to open is ₹500

Minimum investment required to open is ₹1000

₹1000 or more needs to be invested every year

No mandatory contributions each year

Withdrawal up to 60% at the attainment of 60 years of age

No lock-in period

Tax benefits can be availed

Tax benefits cannot be availed


Bottom Line

While retirement may seem a distant reality, it is always wise to start building your future financial plans as early as possible. You may need the money for some planned investment or for a regular income. Whatever be the reason, investing in NPS can be quite beneficial. To begin with, you must open a Tier 1 account and thereafter, you may decide if or not your wish to open a Tier 2 account.

Sources:
¹https://npscra.nsdl.co.in/subscribers-corner-knowledge-centre.php
²https://www.etmoney.com/pension/nps-interest-rate
ADV/6/22-23/568

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