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What is the NPS Tier II default scheme? Should government sector subscribers opt for it?

Posted on 26 Sep 2023
Author: Sayan Sircar

Tags: NPS ; News

3 mins read
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This article explains the PFRDA announcement about a new default scheme under NPS Tier II for government employee subscribers.

What is the NPS Tier II default scheme? Should government sector subscribers opt for it?

📚 Topics covered:

What is the NPS Tier II Default Scheme?
Who can invest in the NPS Tier II Default Scheme?
What are the key features and benefits of the NPS Tier II Default Scheme?
How does the NPS Tier II Default Scheme differ from existing investment options (Scheme E/G/C) for Government Sector Subscribers?
Explain how subscribers can activate their Tier II account and opt for the default scheme?
Are there any tax implications or tax benefits associated with the NPS Tier II Default Scheme?
Should subscribers opt for this new default Tier II scheme?

What is the NPS Tier II Default Scheme?

The NPS Tier II Default Scheme was introduced by a PFRDA Circular No: PFRDA/2023/27/Sup-CRA/08 on 22-Sep-2023.

Who can invest in the NPS Tier II Default Scheme?

The NPS Tier II Default Scheme is open only for government sector subscribers.

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What are the key features and benefits of the NPS Tier II Default Scheme?

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.

How does the NPS Tier II Default Scheme differ from existing investment options (Scheme E/G/C) for Government Sector Subscribers?

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.

Explain how subscribers can activate their Tier II account and opt for the default scheme?

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.

Are there any tax implications or tax benefits associated with the NPS Tier II Default Scheme?

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.

Should subscribers opt for this new default Tier II scheme?

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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What is the NPS Tier II default scheme? Should government sector subscribers opt for it?

What is the NPS Tier II default scheme? Should government sector subscribers opt for it?

📚 Topics covered:

What is the NPS Tier II Default Scheme?

Who can invest in the NPS Tier II Default Scheme?

What are the key features and benefits of the NPS Tier II Default Scheme?

How does the NPS Tier II Default Scheme differ from existing investment options (Scheme E/G/C) for Government Sector Subscribers?

Explain how subscribers can activate their Tier II account and opt for the default scheme?

Are there any tax implications or tax benefits associated with the NPS Tier II Default Scheme?

Should subscribers opt for this new default Tier II scheme?

What's next? You can join the Arthgyaan WhatsApp community

If you have a comment or question about this article

If you liked this article, please leave us a rating

Discover an article from the archives

Worked out case studies for goal-based investing

Case study: how can this middle-aged investor with two children plan for retirement and children's goals?

Case study: can this double income single kid family reach FIRE at 50?

Case study: how a family in their mid-30s with a newborn kid can FIRE and invest in real estate?

Case study: how this double income recently married family can perform DIY goal-based investment planning

Case Study: How should couples in their 40s with a new baby plan their financial future?

Case study: how this double income single kid family can perform DIY goal-based investment planning

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