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
Drag each meaning up or down until it sits beside the term it belongs to.
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?
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