PFRDA Introduces NPS Swasthya Pension Scheme As Proof Of Concept

The pension regulator has rolled out a health-linked pension product under the National Pension System (NPS), creating a new avenue for subscribers to meet medical costs through their retirement corpus, and, according to a recent circular by Pension Fund Regulatory Authority (PFRDA), the initiative will be launched as a controlled Proof of Concept (PoC) under its regulatory sandbox framework.

The new product, called the NPS Swasthya Pension Scheme, combines elements of pension savings with financial support for outpatient and inpatient medical treatment. It is structured to test whether NPS can be extended beyond retirement income and into healthcare protection, a growing worry for middle-class families who find medical bills eroding long-term savings.

A Pension Product Designed Around Medical Needs

Unlike conventional pension accounts, the Swasthya variant allows subscribers to draw directly from their NPS contributions for medical expenses. Partial withdrawals can be made to pay for hospitalisation, diagnostics, and outpatient procedures as and when they arise. Under the framework approved for the pilot, subscribers may withdraw up to 25 percent of their own contributions to meet medical needs without a cap on the number of withdrawals, provided the account accumulates a minimum corpus of Rs 50,000.

In cases of serious illness where treatment costs exceed 70 percent of the corpus, subscribers will be permitted to exit the scheme prematurely and receive the entire amount as a lump sum solely for medical treatment. Any balance that remains after settling a medical bill will flow back to the subscriber’s common NPS account, preserving the long-term pension structure.

Eligibility has been kept broad. Any citizen can join, and subscribers above 40 may move up to 30 per cent of their own or employee contributions from their common NPS account into the Swasthya account. Contributions will follow the multiple scheme framework norms and be invested by pension funds that have secured prior regulatory approval.

Industry Implications And Why It Matters To Savers

The PoC approval has arrived at a time when rising healthcare costs and limited insurance coverage have made medical spending one of the biggest drains on retirement savings. For many households, a single hospitalisation can set back years of financial planning. PFRDA’s move signals an experimental but pragmatic recognition that retirement products may need to account for healthcare shocks rather than treat them as separate domains. Says Tapan Singhel, MD&CEO, Bajaj Allianz General Insurance: "Over the last few years, as a member of the Pension Advisory Committee at PFRDA and chairman of the CII National Committee on insurance and pensions, I have been consistently advocating that retirement planning in India must reflect healthcare realities. The NPS Swasthya Pension Scheme, introduced as a Proof of Concept under PFRDA’s Regulatory Sandbox, is a timely step that reflects a government that listens and a progressive regulator willing to innovate responsibly, with the right safeguards before scale. I am particularly impressed by the speed of execution led by Mr S Ramann and Mr Randip Singh Jagpal in taking this from intent to action.”

The pilot will also test the operational plumbing required for such a hybrid scheme, including digital consent under the new data protection framework, grievance handling between pension funds and TPAs, and coordination for settlement of medical claims. If successful, it could open the door for broader health-linked pension products or encourage insurers and pension managers to collaborate more closely.

For now, the initiative remains a PoC with a restricted number of subscribers and a defined evaluation period. If viability isn’t established, subscribers onboarded under the pilot will be given the option to shift their corpus back to their regular NPS accounts and exit under existing norms. But if it works, the Swasthya scheme could reshape how Indians think about retirement planning, not as a single bucket of post-employment income, but as a flexible pool that can cushion them against life’s biggest and most unpredictable expense: healthcare.