National Pension Scheme: Top 5 reasons to have NPS Tier-2 account

National Pension Scheme: A substantial corpus creation for one’s retirement phase is an essential aspect to take care of while undertaking financial planning. To address this concern of the growing senior citizen demography in the country, the Government introduced schemes like the National Pension System or NPS. The scheme allows for systemised savings during one’s working years, thus inculcating a financial discipline among individuals to save for the future.

The National Pension System (NPS) offers two types of accounts: NPS Tier I and NPS Tier II. Tier I is a compulsory pension account while Tier II is an optional facility provided to NPS Tier I account holders which can be opened at the discretion of the subscriber.

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NPS Tier-2 account is market linked and as per the PFRDA or Pension Fund Regulatory and Development Authority, there are certain benefits for which one should have NPS Tier-2 account with more exposure:

1] Flexibility to invest: An NPS Tier II subscriber is free to select any of the registered Pension Fund (PF) and Investment Options as like in NPS Tier I account to get the benefit of professional fund management to generate superior returns.

2] Optimal Returns: NPS is a market-linked product and depending on risk appetite of the subscriber, he/she can decide a suitable asset allocation pattern (among Equity, Corporate Bonds and Government Securities) within the prescribed limits to derive optimal returns.

3] Low Cost: NPS carries the benefit of being the lowest cost pension product in the world. The overall costs in NPS are the lowest due to economies of scale in operations of the system architecture. Also, accumulation of the retirement corpus over a period gets accelerated on account of the compounding effect and nominal charges borne by the subscriber.

4] Tax benefits: Exclusive tax benefits on contributions made to Tier II are available for Central Government subscribers subject to lock-in of 3 years, upto Rs 1.5 lakhs under section 80C of the Income Tax Act, 1961. The capital gains arising from Tier-II investments are taxable at marginal rate.

5] Ease of access and transfer: NPS Tier II account can be operated (including withdrawals) through online/Mobile App. Subscribers are also enabled to transfer funds from his/her Tier II account to NPS Tier I (pension account).