Lesson 3 of 3 · 7 min
NPS: two tiers, one locked box
Tier I is the retirement account and does not open until sixty. Tier II is a wallet attached to it. At the exit, most of the money has a job waiting.
NPS is the other machine, and it works on a completely different principle from provident fund. There is no declared rate. Your money is managed by a pension fund you pick, and the value moves with what those investments do.
What you end up with at sixty is therefore not a number anyone can tell you in advance. NPS is regulated by PFRDA, and it comes in two tiers that people constantly confuse with each other.
| Question | Tier I | Tier II |
|---|---|---|
| What it is | The retirement account proper | A voluntary account attached to an active Tier I |
| Can you take money out | Only in narrow situations before the exit age | Yes, at any time |
| Tax deductions on what you put in | Available, subject to the ceilings | Not available to most subscribers |
| Can it exist on its own | Yes | No — it needs a Tier I account first |
What happens at the exit
- Normal exit age
- 60
- At least this much of the corpus must buy an annuity
- 40%
- Maximum taken as a lump sum
- 60%
- Small corpus exception
- ₹5,00,000
Before that, exit is possible only in the narrow situations the regulations set out.
This is not a choice at the exit. At least 40% of the corpus must buy an annuity from a life insurer.
The remainder, payable as a lump sum that is exempt from income tax.
A corpus at or below this figure at superannuation may be taken out in full, with no annuity required.
Match them up
Six words this whole course turns on
Pick a term, then pick what it actually means.
Pick a term on the left.
Just for you
Open your last payslip and find the provident fund line. Then work out what 24% of your basic pay is. Does the number in your passbook match what you assumed was being saved for you?
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Check yourself
1 / 3
Kabir asks
What is the practical difference between Tier I and Tier II?
Done reading?
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