What is the NPS Tier II default scheme? Should government sector subscribers opt for it?
This article explains the PFRDA announcement about a new default scheme under NPS Tier II for government employee subscribers.
This article explains the PFRDA announcement about a new default scheme under NPS Tier II for government employee subscribers.
The NPS Tier II Default Scheme was introduced by a PFRDA Circular No: PFRDA/2023/27/Sup-CRA/08 on 22-Sep-2023.
The NPS Tier II Default Scheme is open only for government sector subscribers.
The NPS Tier II Default Scheme offers greater flexibility in contributions without a mandatory annual requirement. Subscribers can withdraw funds at any time, and there’s no minimum balance requirement. The scheme allows seamless transfer of funds to the primary pension account (Tier I). Subscribers can also nominate beneficiaries for the Tier II account separately.
The NPS Tier II Default Scheme provides flexibility in contributions and withdrawals, while existing schemes like E, C, and G have specific investment patterns and constraints. Scheme E primarily invests in equities, Scheme C is a mix of fixed income instruments and equities, and Scheme G invests in government securities and related instruments.
Government sector subscribers associated with Protean CRA can activate their Tier II account and opt for the default scheme through the Protean e-NPS website. If a subscriber already has Tier II and wishes to opt for the default scheme, they can do so through the Scheme Preference Change option available in their login on the subscriber portal.
The circular does not mention tax implications or benefits related to the NPS Tier II Default Scheme. NPS Tier II taxation is not well-defined and it is not possible to say if Tier II withdrawals are taxable or not.
Eligible NPS subscribers do not have any special benefit with Tier II that cannot be obtained from say a mutual fun. There is no special tax benefit like Tier I and taxation on withdrawal is ambiguous.
Instead of contributing to the new Tier II default scheme, eligible subscribers may opt for mutual funds using the retirement planning framework explained here: A low-stress step-by-step guide to creating a retirement portfolio.
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This post titled What is the NPS Tier II default scheme? Should government sector subscribers opt for it? first appeared on 26 Sep 2023 at https://arthgyaan.com