NPS Swasthya: A Game Changer Or Gap-Filler

The Pension Fund Regulatory and Development Authority (PFRDA) has launched the NPS Swasthya Pension Scheme in January 2026 as a proof of concept (POC-1) under the regulatory box, which means the scheme has been launched as a pilot project for a restricted number of subscribers and a defined evaluation period. On April 7, the regulator launched PoC-2 under the regulatory sandbox framework after incorporating new operational and product features and more flexibility based on the feedback. A new scheme has been launched under PoC-2.

The aim of the scheme is to provide healthcare accessibility and financial security through a single product. Healthcare is one of the most crucial aspects of old age, but it is not always accessible due to the rising cost. NPS Swasthya scheme offers the solution by making the money that is saved for retirement available to be used for medical needs. The aim is to provide a comprehensive solution for overall well-being.

Subscribers can withdraw up to 25 per cent of their contribution for medical needs, without any restriction on the number of partial withdrawals. There is no waiting period, and withdrawals are permitted anytime provided that the minimum accumulation of Rs 50,000 is met. The subscriber can also exit the scheme with a 100 per cent lump sum in case the expense for an inpatient treatment in a single instance exceeds 70 per cent of the total corpus.

But, wouldn’t it defeat the purpose of long-term financial security and retirement planning, which is the core of pension schemes like NPS?

Rajesh Khandagale, SVP - NPS, KFintech, says, “As per policy, a subscriber can withdraw 100 per cent in case of emergency. As this is a specific scheme for financial support for healthcare, subscribers have the option to invest in other schemes that are aligned with the purpose of financial security in retirement.”

“NPS Swasthya is a voluntary contributory scheme, separate from the NPS contribution subscribers make to their regular NPS corpus. Subscribers can simply allocate specific contributions to this health-focused account, which then earns market-linked returns similar to the regular NPS corpus,” says Abhishek Kumar, a Securities and Exchange Board of India (Sebi)-registered investment advisor (RIA), and founder of SahajMoney, a financial planning firm.

While investment in the NPS common scheme or the MSF scheme can be withdrawn fully only after retirement and 15 years, respectively, NPS Swasthya allows full withdrawal at any time when there is an emergency.

For partial withdrawals, too, there is no limit on the number of withdrawals under NPS Swasthya, whereas the amount is restricted to only 25 per cent, with a restriction of only four partial withdrawals throughout the investment period under the NPS common scheme. Also, there has to be a gap of four years between each withdrawal.  

The keyword for NPS Swasthya is ‘Flexibility’, a trait PFRDA has been focusing on for quite some time.

Is It Better In Terms Of Premium And Coverage Compared To Health Insurance?

The scheme permits withdrawal for both outpatient (OPD) and inpatient (IPD) department-related expenses, similar to health insurance coverage.

Kumar, however, highlights that NPS is generally more cost-effective because it utilises the low fund management fees of the NPS ecosystem and provides access to low-cost top-up insurance options.

However, the coverage amount is subject to the contribution, unlike health insurance’s sum insured. Here, the less the contribution, the less the amount available for withdrawal.

As Khandagale says, “The coverage for NPS Swasthya will be limited by the investment made by the subscriber and the coverage given by the Healthcare Service Provider.”

Should You Invest In NPS Swasthya If You Already Have Health Insurance?

This is another investment option to cover both regular (OPD) and emergency (IPD) healthcare expenses.

“If you already have an insurance policy, you can consider NPS Swasthya as a backup plan for a scenario when the insurer delays claims processing for some reason. Then you can use NPS Swasthya to tide you over such situations. But, if you don't have any insurance cover and can't buy now due to a health issue or any other reason, then NPS Swasthya can act as your healthcare fund,” suggests Kumar.

Khandagale states, “Swasthya provides an additional option to the subscriber to manage their healthcare expenses and if not used can serve the purpose of financial security in retirement.”

NPS is a cost-effective scheme. As the NPS framework is now serving as an umbrella framework for different schemes, including the NPS common scheme, NPS Vatsalya, and now NPS Swasthya (under the PoC version as of now), they are also cost-effective. The point lies in how to utilise these.

In the case of Swasthya’s existing rules, it is a fund that can serve as a healthcare-focused scheme, which, if not used, can accumulate depending on market returns and provide social security after retirement.