Is NPS Swasthya The Right Fit For You?

It’s a well-known fact that health complications rise with age. With the cost of health treatments rising, a single hospitalisation can disrupt a well-laid retirement plan. While health insurance can soften the blow, high premiums and limited coverage act as roadblocks. Experts often recommend taking health insurance early or taking a top-up or super top-up health insurance policy to solve the affordability issue, and building a separate medical fund for coverage gaps.

The Pension Fund Regulatory and Development Authority (PFRDA) has now entered the space with NPS Swasthya Pension Scheme, which was formally launched on the occasion of NPS Diwas on October 1, 2026, to give a double solution.

This healthcare savings model marries the need for health expenses with expenses towards medical needs with the retirement corpus to cover the gap. It does this by combining a healthcare investment account with a super top-up policy (see Features of NPS Swasthya).

Says Sumit Shukla, managing director and CEO, Axis Pension Fund: “At a time when medical inflation continues to outpace general inflation, such a structured approach (NPS Swasthya Pension Scheme) can strengthen financial resilience, encourage disciplined savings, and provide individuals and families with greater confidence in managing healthcare expenses over the long term.”

Pension fund offering NPS Swasthya will need to engage insurance companies registered with the Insurance Regulatory and Development Authority of India (Irdai) to provide a super top-up policy.

NPS Swasthya Vs Super Top-Up Health Plan

A super top-up policy comes with a mandatory deductible, which is a fixed portion of any claim that the policy doesn’t pay.

For instance, if the deductible is Rs 1 lakh and the claim is Rs 3 lakh, the policy will pay only Rs 2 lakh; you will have to bear Rs 1 lakh. If the claim is only Rs 1 lakh, the policy will not pay anything. The deductible amount basically reduces the claim payout, which in turn allows these policies to give a larger cover at a lower premium.

Typically, people use a base health insurance policy to fund the deductible amount or pay from their own pocket. NPS Swasthya has a role to play here. It can be used as a medical corpus to fund the deductible amount or to pay for any gaps in the claims amount.

Says Kurian Jose, chief executive officer, Tata Pension Fund Management: “Under NPS Swasthya, in addition to this insurance protection, the subscriber builds a market-linked NPS corpus that can be accessed for eligible healthcare expenses. The NPS Swasthya circular from PFRDA permits partial withdrawals of up to 25 per cent of the subscriber’s contributions, with no restriction on the number of withdrawals and no minimum waiting period. Importantly, any eligible healthcare expense may be considered for payment from the NPS Swasthya corpus even where it may not be paid under the insurance policy.”

Given that health insurance policies, including super top-ups, often come with exclusions, conditions and waiting periods, several experts recommend building a separate medical corpus which can be used to pay for expenses such as outpatient department (OPD), diagnostics, therapies and medicines.

You can also use the savings in NPS Swasthya to pay renewal premiums for the policy, though the initial cost has to be borne by you. “This provides convenience and may help maintain continuity of the mandatory health insurance cover,” says Jose.

Another key difference is the broad entry age spectrum. The entry age for NPS Swasthya is 18-70 years and renewal is allowed till the age of 85 years, subject to conditions. “Age limits for standalone super top-up policies available in the market may differ across insurers and products,” says Jose.

However, NPS Swasthya is a little inflexible when it comes to choosing the sum insured and the deductible. There are four sums insured of Rs 1 lakh, Rs 5 lakh, Rs 10 lakh and Rs 30 lakh on offer with fixed deductible amounts (see Fixed Combinations). If you buy a super top-up health insurance on your own, you will get to choose the amount of sum insured, apart from these four amounts, and also choose the amount of deductible.

Can It Substitute Health Insurance?

There is no mandatory deductible in a standard health insurance policy, which may cover the full claim if the policy has no other co-payment clause or sub-limits on payments, and the patient fulfils all the conditions. In that sense, NPS Swasthya cannot replace health insurance.

Says Shukla: “NPS Swasthya should not be viewed as better than health insurance, but as a differentiated and complementary solution. Health insurance provides defined risk protection through a policy, whereas NPS Swasthya works as a self-funded, market-linked corpus within the pension framework. It can help meet expenses, such as co-payments, consumables, medicines, diagnostics, and outpatient care, which may not always be fully covered under standard health insurance policies.”

Like in any other investment instrument, the corpus keeps growing when it’s not withdrawn. Shukla adds: “Any unutilised amount can remain invested and may continue to grow over time, thereby supporting both healthcare needs and long-term wealth creation.”

Things To Keep In Mind

Coverage: The insurance policy under NPS Swasthya shall commence not later than T+1 working day from the date of successful enrolment of the subscriber under NPS Swasthya and receipt of the applicable minimum initial contribution, says the PFRDA document. However, coverage will be subject to the terms and conditions of the insurance policy and the applicable insurance law.

Renewal Through Corpus: Unlike NPS’s other schemes, NPS Swasthya subscribers need to pay the insurance premium apart from investing in it.

If you choose to pay the renewal premiums from the NPS Swasthya investment account, but there’s insufficient balance, and the premium remains unpaid through the grace period, the cover will lapse. However, the pension fund is required to alert the subscriber at least 90, 60 and 30 days prior to renewal. Once the cover lapses, the Swasthya account will be closed. The funds will be moved into an existing or new NPS account under the All Citizen Model. You also have the option to move funds from another NPS account to the Swasthya account in case you are short on funds.

Outlook Money Take

NPS Swasthya tries to address healthcare needs in old age, which is a crucial part of overall retirement planning and old-age financial security. However, it remains to be seen how the fund performs compared to other market-linked investment instruments that can also act as a medical fund.

Even within this investment account, it would make sense to separate your cash flow needs with your medical fund needs. If that looks difficult, ensure that you have a separate NPS account or investment in another instrument for your regular financial needs in retirement.

versha@outlookindia.com