To make the New Pension System (NPS) more attractive, PFRDA (Pension Fund Regulatory and Development Authority) has introduced the concept of Tier-2 account. This is to provide for withdrawals to meet financial contingencies.
Opening the Tier-1 account is compulsory for everyone opting for NPS. However, the Tier-2 account is optional for the investors, as it is a voluntary savings account from which the investor can withdraw money, any time and any number of times.
The Tier-2 enables people build savings through investments over and above those in the Tier 1 pension account. Only those having an active Tier 1 account can open the Tier 2 account. The best part is that now both Tier 1 and Tier 2 account can be opened simultaneously with just Rs 1500/-. Withdrawal from Tier-2 account can be done freely anytime and it acts actually a cheap mutual fund where you would be paying Fund Management Charges of just .005% compared to 1.5% in Balanced Mutual Fund.
Considering the recent changes done by SEBI in Life insurance Pension plan where life cover is made mandatory and no withdrawal is allowed (Full or Partial), it makes more sense to opt for NPS (New Pension Scheme) as charges in this are thousand times lesser than Pension Plan from Life insurance companies.
The Central Record-keeping Agency (CRA) will not levy additional maintenance charges on the Tier 2 accounts, other than the nominal Rs. 10 for each transaction, as is the case with Tier 1 account. Investors can choose separate fund managers, separate pattern of investment and appoint separate set of nominees. If one wishes, he/she can transfer money easily from Tier 2 to Tier 1 account too
Minimum amount for opening Tier 2 account is Rs. 1,000. Minimum remittance is Rs. 250 and minimum balance at the end of a financial year is Rs. 2,000. Minimum number of contributions in a year is four. The Tier 2 savings can be added to pension corpus at the time of retirement to increase monthly pension.
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