NPS rule change: Default option available in NPS Tier II accounts for govt employees; what is it it and how will it help? Till now, the default scheme was available only to NPS Tier I account subscribers. So those government sector NPS subscribers who chose to invest in NPS tier II accounts, had to pick their pension fund managers (PFM) and percentage in which the selected PFM will invest the fund. Now, the government sector NPS subscribers can also select the the default scheme option in NPS tier II. This scheme is designed to offer flexibility and convenience to government sector
Government sector subscribers of the National Pension System (NPS) will now get the default scheme option in NPS tier II accounts. In a circular released on September 22, 2023, the Pension Fund Regulatory and Development Authority (PFRDA) said "It has been decided to introduce the NPS Tier II default scheme exclusively for government sector subscribers."What is the default scheme in NPS and what has changed for NPS Tier II govt subscribers?
Till now, the default scheme was available only to NPS Tier I account subscribers. “So those government sector subscribers who chose to invest in NPS Tier II accounts, had to pick their pension fund managers (PFM) and percentage in which the selected PFM will invest the fund,” explained Abhishek Kumar, a SEBI registered investment advisor (RIA) and Founder of SahajMoney.
In the default scheme, the contribution is allocated to three Pension Fund Managers (PFMs) — SBI Pension Funds Private Limited, UTI Retirement Solutions Limited, and LIC Pension Fund Limited — in a predefined proportion, and each of the PFMs will invest the funds in the proportion of 85% in fixed income instruments and 15% in equity and equity-related instruments, according to the details available on the Protean website.
"This (move) 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 pension funds," clarified PFRDA.
It is clear that government sector subscribers no longer need to select PFMs and the percentage of their allocation in NPS Tier II account, mentioned Kumar.
Do remember that this default scheme is an additional option that will now be offered to government sector subscribers who invest in NPS Tier II. The other existing investment options such as equity, corporate debt, and government debt will also be available like before.
How will NPS Tier II default scheme help NPS government sector subscribers?
"The NPS Tier II default scheme represents a significant step forward in catering to the diverse financial aspirations of the government sector subscribers. This scheme is designed to offer flexibility and convenience, aligning with the unique requirements of the subscribers under the government sector," said PFRDA. Kurian Jose, CEO, Tata Pension Management said, “Allowing government sector employees to invest in Tier 2 Schemes under the default option combines the benefits of Tier II scheme investments along with flexibility and convenience of investing for various financial goals. Tier II schemes provide various benefits like no lock-in, anytime withdrawals, no mandatory or minimum contributions at low cost. The step will enable government sector employees a simplified way of investing in NPS Tier II without the need to actively choose the schemes and pension funds.”
“It is a positive step towards empowering government sector subscribers to have greater control over their retirement savings, ensuring financial well-being in the long run,” said Maneet Pal Singh, Partner, I.P. Pasricha & Co.
Do remember that government sector subscribers may continue with the default scheme under NPS Tier Il even after they shift their account to another sector.
How NPS govt sector subscribers can choose the default option in NPS Tier II accounts
- If any NPS subscriber already has Tier II and wishes to opt for the default scheme in Tier II, he or she can do the same through the Scheme Preference Change option available in the login of the subscriber on the Protean e-NPS website (those who are associated with Protean CRA), PFRDA mentioned.- NPS subscribers who have opened their accounts through KFin Technology CRA will get the facility of default choice under the NPS Tier II scheme soon, PFRDA said.
"To join Tier II and opt for the default scheme, the subscribers need to provide consent or a request to the CRA through the associated nodal office. The online and electronic modes of consent mode available on the CRA portal for the benefit of subscribers," said PFRDA. More than 700 subscribers have already opted for the default scheme in Tier II, PFRDA added.
NPS offers two types of accounts — Tier I and II. NPS Tier I is a mandatory retirement account, whereas NPS Tier II is a voluntary savings account. You are not required to maintain a minimum balance in the NPS Tier II account. You can use an NPS Tier II account as an investment account where you park your surplus money and can withdraw at any time. However, there is no tax advantage for the money parked in a Tier II account.
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This story originally appeared on: India Times - Author:Faqs of Insurances
