Those who hold a National Pension System (NPS) account must be aware of the fact that there are two types of pension accounts: Tier I and Tier II.
Those who already have a Tier-1 account are given the option of opening a Tier-2 account as well. But before we go further, we will first explain what exactly is a Tier-II account.
What is a Tier-II account?
It is a voluntary account that can be opened only if one already has a Tier I account.
At the time of opening an NPS Tier II account, one is required to make a minimum contribution of ₹1,000. But there is no minimum yearly contribution in a Tier II NPS account, unlike in a Tier I account where a subscriber has to contribute a minimum of ₹1,000 each year.
However, contributions that are made to Tier II NPS account should be in multiples of ₹250, with no maximum limit on contribution made.
Steps to activate Tier-II account
To activate your Tier-II account, one has to first visit the NPS website link and click on your CRA (Central Recordkeeping Agency) that issued you PRAN (Permanent Retirement Account Number). There are four such agencies that are protean, KFintech, CAMS and NPS.
Upon clicking one of the links, the system will prompt you to enter the details such as PRAN, date of birth, PAN and password. Through this, you can verify your PRAN. Once this is done, you will enter your account.
As you enter your account, you can click on the option to activate your Tier-II account online on the CRA’s portal.
Advantages of Tier-II account
A Tier II NPS account offers greater flexibility in terms of withdrawal, and there is no exit load when you withdraw funds from your Tier II NPS account. But it is vital to note that NPS Tier II investments are not tax-free. There are several other benefits of an NPS Tier II account.
One of them is that there is no additional annual maintenance charges.
In case an account holder wants to move funds to the Tier-1 account at any point, he can do that. There is no minimum balance required in an NPS Tier II account. Besides this, one can opt for a different investment pattern from Tier I.
To be able to open an NPS Tier II account, it is important to note that one should be an Indian resident between 18- 60 years of age, hold a Tier I account with a PRAN number.