Difference between Tier 1 and Tier 2 account of the new pension scheme(NPS).
Tier 1 and Tier 2 both options exist in
They know only about default account which Tier 1 account.
Government of India launched NPS to provid retirement corpus to Indian Citizens.
This scheme is regulated by PFRDA( Pension fund Regulatory Development Authority of India).
All citizens of India including Non -Resident Indians are eligible to invest in this scheme.
However, existing NPS subscribers and people who do not have sound mind are not allowed to enter into this scheme.
Hence, One person can have one NPS account only.
How to Open National System Account( NPS ) account?…
Read this article about what is NPS and How to open NPS account online or offline. Click here to read.
You can open NPS account online or offline.
You should provide KYC documents to open the account.
The minimum contribution for tier 1 account is Rs.500 and for Tier 2 account is Rs.1,000.
Investment Choices Available in NPS account are…
Asset Class E
Investment will be done in equity predominantly.
Hence there be high risk and high reward in this investment option.
Asset Class C
Invests in Fixed Income other than Government Securities.
In this investment there will be a medium risk.
Asset Class G…
Here, Investment will be done in Government Securities. So, low risk and lower will be the return.
Along with above options, you have freedom to chose two different options to chose for asset allocation.
Active Choice…
In this choice, you can choose a combination of investment among E, C and G. But E option should not be more than 75%(earlier 50% only ) of the portfolio and 15% to Government Employees
Auto Choice…
If you do not want to do active switching among these three options, then in auto choice PFRDA will do it for you based on your age.
PFRDA has predefined strategy for this.
You can change both scheme preference and investment choices at any time in the year.
But you can do this switch once in a year only.
Moreover, Please remember return or profit from NPS scheme is not guaranteed.
Who manages this NPS Fund?…
PFRD appointed funds managers to manage NPS.
At present there are 6 Fund Managers are managing NPS fund.
They are…
UTI Retirement Solutions Limited, ICICI Prudential Pension Funds Management Company Limited, Reliance Capital Pension Fund Limited Kotak Mahindra Pension Fund Limited
You are allowed to change your fund manager at any point
How you will get pension from age 60?…
PFRDA tied up with some life insurance companies to provide pension to you from age 60.
There are as given below…
SBI Life Insurance Co. Ltd,Life Insurance Corporation of India, ,
Bajaj Allianz Life Insurance Co. Ltd ,ICICI Prudential Life Insurance Co. Lmitted., ., Star Union Dai-ichi Life Insurance Co.Ltd., Reliance Life Insurance Co. Ltd. and HDFC Standard Life Insurance Co.Lmitted.
How to exit from Nps ( National Pension System) ?…
At age 60, you are allowed to withdraw 60% of the fund and with balance 40% you have to buy pension policy from life insurance company to get pension.
If you want to exit before age of 60 then only 20% of corpus you can withdraw and on 80% of corpus accumulated, you should buy pension policy.
However, In case of death of the NPS subscriber, Nominee can withdraw 100% of the corpus accumulated.
Lets see the differences between Tier 1 and Tier 2 in below image…
Also from April 2019, The central Government will contribute 14% of Basic Plus DA to National Pension System in place of earlier 10%.
However, there are no changes to employee contribution rules.
Conclussion…
Investing in NPS is not advisable as you do not have flexibility on withdrawals.
But central and Corporate employees have to invest in it as it is mandatory for them.
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