For many investors, the National Pension System (NPS) is first understood through its tax benefits, low-cost structure and retirement-planning role. But an NPS account also comes with an administrative layer. Central Recordkeeping Agencies, or CRAs, maintain subscriber records, process transactions and support account servicing. For this, charges are levied.

PFRDA’s latest clarification on CRA charges (https://tinyurl.com/pfrdaapr29) matters because it tells subscribers when these charges do/don’t apply and how they will be collected. The circular makes the cost structure more explicit, and that is useful for three kinds of people: a first-time subscriber, an existing subscriber with multiple accounts or schemes, and someone who has opened NPS, but has stopped contributing.

Tier II

The first important clarification concerns Tier II accounts. PFRDA has said the Annual Maintenance Charge (AMC) for a Tier II account will be aligned with the AMC applicable to the Tier I account under the respective sector, whether government or private. In simple terms, Tier II will not sit outside the CRA charge framework merely because it is a voluntary account.

For a new subscriber, this is useful to know upfront. Tier I is the retirement account with withdrawal restrictions and tax relevance. Tier II is more flexible, but it is still part of the NPS architecture. The advantage of the clarification is that investors now know Tier II is not automatically cost-free. The possible downside is that someone who opens Tier II casually, without using it meaningfully, may end up paying maintenance charges if the balance is above the exempt threshold.

That threshold is the second important point. No AMC will be levied on a Tier II account where the corpus is up to ₹1,000 at the end of a quarter. This is a small but sensible protection. If a subscriber has a tiny Tier II balance, the account should not be gradually eroded by maintenance charges.

The pro is obvious. Small or inactive Tier II balances get some protection. This may help investors who opened Tier II experimentally or have left a very small sum in the account. The con is equally important. Once the quarter-end corpus is above ₹1,000, the exemption may not apply. So, subscribers should not assume that Tier II is free merely because the balance is small in absolute terms.

The third clarification is more consequential for existing subscribers. Each pension scheme maintained within a Permanent Retirement Account Number (PRAN) will be treated as a separate account, whether under Tier I or Tier II, and each such account will attract AMC separately, as applicable.

This is where investors must pay attention. A single PRAN does not necessarily mean a single AMC if there are multiple pension schemes maintained within it. The benefit of this rule is clarity. The cost treatment is now explicit. The drawback is that diversification within the NPS structure may carry separate administrative costs. This does not mean investors should avoid diversification. It means they should know the cost before spreading across multiple accounts or schemes.

Dormant Relief

The fourth and most subscriber-friendly clarification concerns dormant accounts. If no contribution is received for four consecutive quarters, the account will be flagged as dormant during the first week of the next quarter in the CRA system. For such dormant accounts, the AMC will be only 10 per cent of the applicable AMC.

This matters for people who take career breaks, lose jobs, shift employment, become self-employed, move abroad temporarily or simply stop contributing. NPS is a long-term product, but life is not always linear. A person may contribute for some years and then pause. Charging the full maintenance fee during long inactivity can feel harsh, especially for small balances. Reducing the AMC to 10 per cent recognises that inactive accounts should not bear the same servicing cost as active ones.

But there is a caveat. The benefit does not begin merely because one contribution is missed. The account must receive no contribution for four consecutive quarters. So the subscriber effectively waits through a full year of inactivity before the dormant status applies. Also, CRAs have to make the dormant/active flagging effective from July 1, 2026. Existing subscribers should therefore not assume that reduced AMC treatment applies immediately in every case.

The circular also says that once a contribution is received during a quarter, the account will be flagged active in the first week of the subsequent quarter. This creates a clean rule, but it also means subscribers should understand that the dormant-active status is system-driven and quarter-linked.

Cost Visibility

The fifth clarification concerns PRAN opening charges. PFRDA has said the PRAN opening charge will apply only at the time of initial PRAN generation. For activation or opening of each account, Tier I or Tier II, within an existing PRAN, the charge will be nil.

For new subscribers, this means the initial PRAN generation is the relevant point for the opening charge. For existing subscribers, it removes doubt about whether adding or activating an account under the same PRAN involves another opening charge. The pro is that it reduces friction for someone who wants to start Tier II later. The con is that only the opening or activation charge is nil; ongoing AMC rules still apply.

Effective October 1, 2025, the PFRDA introduced the Multiple Scheme Framework (MSF), a major update allowing non-government NPS subscribers to manage multiple investment schemes under a single Permanent Retirement Account Number (PRAN).

The sixth clarification concerns Atal Pension Yojana (APY) and NPS-Lite (lower-cost version) accounts. AMC for accounts with nil balance under APY and NPS-Lite will be nil. This is important because these schemes are linked to small savers and lower-income subscribers. The benefit is that a zero-balance account will not face AMC. The limitation is that the circular specifically refers to nil-balance accounts; it should not be read as a blanket waiver for all low-balance accounts.

Finally, charges will be collected at the end of each quarter. Where the employer bears CRA charges, the CRA will raise an invoice on the concerned entity. In other cases, charges may be collected through unit deduction from the subscriber’s account.

For long-term investors, the lesson is simple – low cost does not mean no cost. NPS remains a cost-efficient retirement product, but subscribers should still track account statements, understand deductions and avoid opening accounts or schemes without purpose.

Published on May 9, 2026