A nest egg that can be dipped into at will

The over-riding advantage of the New Pension Scheme (NPS) launched in 2009 has been its flexibility, be it in terms of plan options or fund managers. Unfortunately, early withdrawals were limited to a few exceptions like a terminal medical emergency. So, the party could only begin at 60. Not fair, right?

Acknowledging this crippling limitation, the Pension Fund Regulatory and Development Authority (PFRDA) has recently unveiled a savings account scheme, which will allow investors to enter and exit at will. To open this new withdrawable account, called Tier-II, a subscriber has to make a minimum contribution of Rs 1,000. Subsequently, he can put in Rs 250, or more, on four occasions, taking care to maintain a minimum balance of Rs 2,000 at the end of the financial year. While no account opening or maintenance fee would be levied by the central record keeping agency, the point of presence, which could be a bank, the pay office in case of government employees or another appointed agency, would charge Rs 20 for activation of the Tier-II account.

Now comes the caveat: Tier-II will be available only to those who have subscribed to Tier-I, the original pension account. Did you really think you could have your cake and eat it too? Also, since Tier II does not have any lock-in period, it does not qualify for a tax deduction under Section 80C. Though the tax treatment of withdrawals is still unclear, experts say that withdrawals are likely to attract capital gains tax. The good news is that investors with an eye on a fat retirement nest egg will be allowed to transfer funds from this account to the pension account.

Key features

• Any number of withdrawals.
• Facility for separate nomination and scheme preference in Tier-II.
• Same choice of fund managers and schemes as in Tier-I account.
• A Tier-I account is mandatory to be eligible for the new account.
• It allows a one-way transfer of funds from Tier-II to Tier-I account.
• The minimum contribution for opening the account is Rs 1,000.
• Only four contributions are allowed in a year.
• The charges for opening Tier-I and Tier-II account is Rs 40; activation charges for Tier-II is Rs 20.