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PFRDA Introduces Default Investment Scheme For NPS Tier II Accounts: Learn More

The PFRDA recently announced introducing the NPS Tier II default scheme option for government employees. It is an effort to make investment in NPS Tier II easy without separately selecting the fund managers for managing their money.

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Outlook Money
September 25, 2023
Default Investment Scheme For NPS Tier II Accounts

Default Investment Scheme For NPS Tier II Accounts

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a default investment option for Tier II accounts in the National Pension System (NPS). Currently, this option is available only for government employees.

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In a circular on September 22, 2023, PFRDA said this option is available besides the existing Scheme E (Equity-related instruments), Scheme C (Corporate debt-related instruments), and Scheme G (Govt Bond-related instrument) options.

Until now, the default option was available only for NPS Tier I accounts. The circular said the Tier II subscribers will have more ‘flexibility and convenience’ after the default option.

What Are The Benefits Of NPS Tier II? 

While the NPS Tier I option has its own benefits, Tier II comes with more flexibility and can use it as per their requirement.

The following are the benefits of an NPS Tier II account:

NPS Tier II contribution has no mandatory annual contribution requirement and has no limit on maximum contributions either.

  • The subscribers can withdraw money from the NPS II account anytime whenever they want. This benefit provides them with liquidity and flexibility, and one can use it to park any extra funds.
  • Further, subscribers can transfer their funds from Tier II to Tier I, at any time. There is no restriction on it, as per the PFRDA circular.
  • Tier II account comes with more flexibility as it has no minimum balance maintenance requirement. One can invest as much as one wants in the NPS Tier II account without any ceiling.
  • The subscribers can nominate different persons for NPS Tier I and Tier II accounts. The nomination facility is separately available in the Tier II account and it can be different from the Tier I account.

The circular says that the default investment scheme has been extended from NPS Tier I to NPS Tier II. “The facility of the Default Investment Scheme of Tier I has been extended to Tier II accounts for Government Sector Subscribers. This facilitates the Subscribers to have access to a simplified default investment scheme, similar to Tier I, without the need for actively choosing a scheme of investment or PFs.”

Knowing the benefits of the Tier II account and the now available ‘Default Investment Option’, let us see how to opt for it.

How Can One Choose The NPS Default Investment Option?  

For this, the subscribers need to send a request to the Central Recordkeeping Agencies (CRA) through the associated nodal officer.

They can also do it online by logging in to the Protean e-NPS website and giving consent to the CRA for opting for the newly launched default option.

Those subscribers, whose accounts are managed by KFin Technology CRA (another CRA for NPS), do not have the default option facility now, but it will be made available to them shortly, says the circular and adds that there are more than 700 subscribers who have already opted for the Default option in Tier II, according to the PFRDA.

While the NPS Tier I offers tax benefits over and above section 80C benefits, NPS Tier II does not offer any such benefit. Moreover, Tier I is a mandatory investment for government employees, whereas Tier II is optional. Based on one’s requirement, one can invest in a Tier II account for a liquid money option because it has no lock-in period and no maximum limit on investment.

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