InvestorQ : What is a Tier-I National Pension Scheme (NPS) account?
divya Sing made post

What is a Tier-I National Pension Scheme (NPS) account?

Nitin Shah answered.
3 years ago

The National Pension Scheme is a voluntary and long-term investment plan for Indian citizens who want to create their retirement corpus.

The scheme comes under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and invests one’s savings in debt and equity market, based on the insured individual’s preference. Accordingly, there are two types of NPS accounts:

- Tier-I or Tier-1

- Tier-II or Tier-2

A Tier I NPS account is the most basic form of pension account. The investment mix varies based on whether the subscribed individual is a government employee or not.

For a government employee, the Tier I NPS account is a scheme that invests in government and corporate bonds. In contrast, for a non-government employee, the investment will be mostly in a mix of stocks, government and corporate bonds, fixed deposits and liquid funds.

A Tier-I NPS account requires a government employee to invest 10% of his/her basic plus dearness allowance (Basic +DA) to be invested every year. The government contributes the same amount in your account.

For a private sector employee, a Tier-I NPS account requires the subscribed individual to invest at least Rs 6,000 per year and a minimum of Rs 500 per month.

Withdrawal of contribution is a major aspect of the NPS accounts. In a Tier-I account, an investor can partially withdraw up to 50% of the contributed funds in case he/she has completed 25 years of service. Furthermore, the Tier-I account allows for premature withdrawals, for those individuals who have completed 15 years of service, but only in the form of repayable advance. Additionally, these withdrawals are only allowed in case of any unforeseen events such as an emergency or a critical illness.

The parameters that an individual needs to meet to be eligible for a Tier-I National Pension Scheme account are:

- He/she needs to be a citizen of India, irrespective of whether he/she is a resident or not

- He/she needs to be18-60 years of age on the date of submission of NPS form

Please note, even non-resident Indians are eligible for the Tier-I National Pension Scheme.

The documents a subscriber requires for opening a Tier-I NPS account are:

- Duly-filled NPS registration form

- Applicant’s identity proof

- Applicant’s address proof

- Applicant’s age or date of birth proof