NPS Tier 2 Account Eligibility, Advantages and Disadvantages – A Complete Guide

Eligibility Criteria to Open an NPS account and to avail NPS Tier 2 tax benefit

The eligibility criteria are as follows:

Applicant must be a resident or non-resident citizen of India
Must have an active Tier 1 account
People between the age group of 18-60 years are applicable for the plan
The applicant should fulfil client compliances as mentioned in the registration form
The applicant must be a government employee to avail NPS Tier 2 tax benefits
Also Read: NPS vs APY Scheme

NPS Tier 2 Advantages and Disadvantages

What are the benefits of an NPS Tier 2 account? NPS Tier 2 accounts have several benefits. However, at the same time it has certain limitations as well, for which we mentioned all the NPS advantages and disadvantages in the table below:

Advantages of NPS Tier 2 Account	Disadvantages of NPS Tier 2 Account
Good Returns – As per an individuals’ risk appetite, NPS tier 2 account holders can choose an asset allocation pattern	No Guaranteed Returns – Under this account, money is accumulated depending on the returns and the returns are created through funds such as corporate bonds, securities, equity etc. Hence, it is quite evident that market fluctuations can have an adverse effect on the returns of the plan
Allow Flexibility – The NPS Tier 2 account holder has the flexibility to choose from any registered Pension Funds and other options of investment.  This is because the NPS tier 2 scheme allows numerous choices. Policyholders under this plan can even move from one option of investment to another	No regular Annuity – Another drawback of NPS tier 2 account is that isdoesn’t provide pension on a monthly basis when you retire. Rather, this plan helps in accumulating retirement corpus
Tax Benefits – NPS tier 2 accounts allow the policyholders to avail tax benefits on premiums paid towards the plan. However, the NPS tier 2 benefits under the plan can be availed by government employees and not private employees	Taxability – This is another disadvantage of the NPS tier 2 scheme. Like in bank FDs, the amount under the NPS tier 2 plan can be withdrawn easily. However, unlike FDs here the complete fund is counted as taxable amount.
Withdrawal from Plan – This is another benefit of the NPS tier 2 account that the money accumulated under this account can be withdrawn anytime	Single Account – The disadvantage, on the other hand, is that a person can have only one NPS account throughout life.
Account Management Cost is Low – The best thing about an NPS Tier 2 account is that it is a low-maintenance product allowing low management cost. Hence, the NPS Tier 2 benefit of accumulated corpus to the policyholder is large	Caters to government employees – A huge NPS disadvantage of the NPS tier 2 account is that the tax benefits under this account caters only to the people working in government jobs and not to the private employees.
Easily to Access – Accessing the NPS tier 2 scheme is seamless, while contributing or paying premium towards the fund is also very convenient	Must have Tier 1 to Open Tier 2 – If the policyholder wants to open a Tier 2 account, he/she must have an active Tier 1 account
Frequency – The policyholder under an NPS account can deposit money at any time. So, as per convenience, a policyholder can pay towards an NPS account on monthly, quarterly, half-yearly or yearly basis.	Withdrawal Restrictions – The withdrawal under this plan can’t be beyond the sum of all premiums paid by the policyholder
Fund Managers – The NPS tier 2 funds are managed by qualified fund managers and are invested as per the approved investment guidelines	Limited Managers – The plan allows limited options to the investors to choose fund managers to manage their funds.
Coverage – NPS tier 2 scheme offers wide coverage as it allows all Indian citizens as well as NRIs to open a Tier 2 account. However, for this it is required for them to have a Tier 1 account. The entry age is also more and ranges between 18 to 60 years	NPS has some risks associated with the policy like average maturity, credit risk, modified duration etc.
Low Investments – Another benefit is that the Tier 1 and Tier 2 accounts of NPS can be opened with a minor investment by depositing the amount via cheque, cash, or demand draft	Investment Restrictions – Policyholders cannot invest more than 50% of their total investment in the NPS account

 

Also Read: Best NPS Scheme 2023

How to Open an NPS Tier 2 Account?

There are two ways to open an NPS Tier 2 account –

Online method to open an NPS Tier 2 Account:

Visit the eNPS website and go to ‘National Pension System’
A pop-up will indicate ‘Tier 2 Activation’. Click on it
Now, enter your details like PRAN number (Permanent Retirement Account Number), DOB, PAN number, along with the Captcha code
‘Verify PRAN’
After the PRAN details are verified on your NPS tier 1, the NPS Tier 2 scheme would be activated

Offline method to open and NPS Tier 2 Account:

Use the ‘Subscriber’s POP-SP’ to create a Tier 2 account
Install Annexure 1 of Tier 2 information form. Fill it and send it to the PPOP-SP
The bank details of the policyholder would be required to open a Tier 2 account. This way, you can directly deposit the amount to the policyholder’s bank account during withdrawal
Now, the setup of the PRAN account needs to be completed. Once it is done, you would receive a login id and password, which can be used to review an NPS account online with a click.

Also Read: What is annuity in NPS