The Pension Fund Regulation and Development Authority (PFRDA) has stopped charging subscription fees through credit cards in tier-2 accounts in the National Pension System (NPS).

Through an official notification dated August 3, 2022, the regulator instructed all Points of Presence (PoP) to immediately stop accepting credit card payments for all tier-2 NPS accounts, effective immediately.

While credit card payments in investment schemes such as mutual funds or stocks are discouraged, NPS is the only savings vehicle that continues to allow account holders to use credit cards to invest through the eNPS portal.

Currently, NPS account holders using a credit card must pay a 0.6% payment gateway fee to contribute to NPS through this avenue when GST is added to this amount, excess leverage rises.

PFRDA said it exercised its powers under Section 14 of the Pension Fund Regulation and Development Authority Act 2013 “to protect the interests of subscribers and to regulate, promote and ensure the orderly development of the national pension system.”

NPS was initially introduced to government employees in January 2004 and later opened to all sectors in 2009. There are two types of NPS accounts – tier-1 and tier-2.

In Tier 1 accounts, contributors can pay a minimum account opening fee of Rs 500. Account holders are also eligible for tax benefits under Section 80CCD (1B) of the Income Tax Act 1961.

Tier-2 NPS accounts are voluntary, and only those with a tier-1 NPS account can open a tier-2 NPS account. The account has a minimum contribution of Rs 1,000 and needs to be made in multiples of Rs 250 with no cap. Tier-2 NPS account holders are not eligible for the income tax exemption for investments made in these accounts.

However, tier-2 NPS accounts offer more flexibility than tier-1 accounts regarding withdrawals and withdrawals.