New NPS fee rules from July: Tier-II costs to rise, dormant fees added

National Pension System subscribers will see a recalibration of account-level charges from July, with the regulator tightening how annual maintenance costs are applied, especially for Tier-II and dormant accounts. 

A circular issued by the Pension Fund Regulatory and Development Authority (PFRDA) on April 29 clarified the charge structure levied by Central Recordkeeping Agencies (CRAs), introducing a more uniform framework across account types while closing gaps that previously allowed uneven fee application.

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Tier-II charges aligned with Tier I

An immediate change for subscribers is the alignment of Annual Maintenance Charges (AMC) for Tier-II accounts with those applicable to Tier I accounts within the same sector — government or private.

This effectively removes the differential treatment that existed earlier between the two tiers. For investors who use Tier-II accounts as a flexible, voluntary savings option, this means costs will now mirror the core retirement account.

However, the regulator has built in a small safeguard for low-balance accounts:

• 
  No AMC will be levied if the Tier-II balance is up to Rs 1,000 at the end of a quarter
• 
  Charges apply only when balances exceed this threshold
• 
  The exemption is likely to benefit small or inactive investors who use Tier-II accounts.

Each scheme treated as a separate account

A less obvious but financially relevant clarification is how accounts under a single Permanent Retirement Account Number (PRAN) will be treated.

PFRDA has specified that:

• 
  Each pension scheme within a PRAN will be treated as a separate account
• 
  AMC will be charged separately for each such scheme

In practical terms, if a subscriber holds multiple schemes (for example, equity, corporate bond, and government securities options), each allocation could attract its own maintenance charge.

This raises the effective cost for diversified investors within NPS, even if the total corpus remains the same.

Dormant accounts to attract reduced but continuing charges

The regulator has also formalised how dormant accounts will be handled — a move that impacts investors who pause contributions.

An NPS account will be classified as dormant if:

• 
  No contribution is received for four consecutive quarters
• 
  Once flagged, the account will:
• 
  Be charged AMC at 10 per cent of the applicable rate
• 
  Continue to incur this reduced charge until reactivated

While the 10 per cent rate appears concessional, it ensures that accounts are not completely cost-free even when inactive.

From a personal finance perspective, this introduces a carrying cost for neglecting contributions, albeit a relatively modest one.

Quarterly valuation to determine charges

• 
  Another operational clarification relates to how AMC is calculated.
• 
  Charges will be based on the corpus value at the end of each quarter

This standardises the valuation point and removes ambiguity around intra-quarter fluctuations. For investors, it means that timing of contributions or withdrawals near quarter-end could marginally influence the fee base.

PRAN-related charges simplified

The circular also simplifies charges associated with PRAN:

• 
  PRAN opening charge will apply only at the time of initial account creation
• 
  Opening or activating additional accounts (Tier I or Tier II) within an existing PRAN will not attract any charge

This removes duplication of fees and makes it easier for subscribers to expand their NPS usage without incurring incremental onboarding costs.

Relief for zero-balance accounts

For accounts under:

• 
  NPS-Lite
• 
  Atal Pension Yojana (APY)
• 
  no AMC will be charged if the balance is zero.

This provision ensures that financially vulnerable or low-income subscribers are not penalised for temporary inactivity or inability to contribute.

How and when charges will be collected

CRAs will collect charges at the end of each quarter through one of two mechanisms:

• 
  Invoice raised on the employer (in cases where the employer bears the cost)
• 
  Direct deduction of units from the subscriber’s account
• 
  This reinforces the quarterly cadence of cost recovery and ensures transparency in fee collection.

What this means for NPS investors

The revised framework signals a shift towards standardisation and tighter cost attribution within NPS.

Key takeaways for subscribers:

• 
  Tier-II accounts are no longer a low-cost alternative to Tier I
• 
  Holding multiple schemes within a PRAN can increase total charges
• 
  Dormant accounts are not cost-neutral, even at reduced rates
• 
  Low-balance and zero-balance protections remain intact

From a planning standpoint, investors may need to reassess how they use Tier II accounts and whether maintaining multiple scheme allocations within NPS is cost-efficient.

The changes will come into effect from July 1, 2026, when CRAs will also begin systematically flagging accounts as active or dormant based on contribution activity.

For long-term retirement savers, the impact may appear marginal in percentage terms, but over extended holding periods, even small adjustments in fee structures can influence net returns.