NPS Swasthya Pension Scheme: Now use NPS to build a medical fund

The National Pension System (NPS) will soon roll out a pilot NPS Swasthya Pension Scheme, which will exclusively cover subscribers’ medical expenses. It will be launched by pension funds initially as a ‘proof of concept’, operating for a limited time duration under a regulatory sandbox.

Here’s how it will work. An individual can contribute any amount to the Swasthya account with any pension fund manager of their choice, who will invest the money in accordance with investment guidelines prescribed under the existing NPS Multiple Scheme Framework (MSF).

For new subscribers to the NPS, a Common Scheme Account shall mandatorily be opened along with the NPS Swasthya Pension Scheme Account. The existing nongovernment NPS subscribers aged above 40 years can transfer up to 30% of their total contributions from the Common Scheme Account to the NPS Swasthya Pension Scheme Account.


Subscribers can make partial withdrawals at any time to meet outpatient or inpatient medical expenses. There is no limit on how many times one can make these partial withdrawals. However, the subscriber can withdraw up to 25% of his own contributions at any given time.

Further, one must first accumulate a corpus of Rs.50,000 to be eligible for the first partial withdrawal. However, for critical inpatient medical treatment, where the hospital bill exceeds 70% of the total account corpus, one can exit and withdraw the full amount to cover that treatment. Note that this money will be remitted directly to the Health Benefit Administrator (HBA) / Third Party Administrator (TPA) against valid claims and bills. Any surplus left after the settlement of medical expenses will be transferred to the subscriber’s main NPS account.

Fees and charges for the NPS Swasthya scheme will be disclosed later. These charges shall include those payable to the HBA. Essentially, the PFRDA will be testing if a health-linked plan can be built into the NPS. If the scheme’s viability is not established, the subscribers onboarded during the pilot will be given the option to transfer their accumulated corpus to their main NPS account.

Experts reckon that if this works out, NPS Swasthya could provide the much-needed financial buffer for individuals’ medical needs. It can act as a back-stop for expenses that may not get covered under a mediclaim policy or for claims that get rejected by insurers.

Pranay Dwivedi, CEO & MD, SBI Pension Fund, says, “In health insurance, sometimes the reimbursement is not up to 100% and subscribers end up paying from their savings or taking loans. This scheme will complement health insurance and help them to copay.”

To be sure, a separate medical corpus can also be built using investments in mutual funds. So a dedicated NPS health scheme may not add much value, apart from its medical expenselinked withdrawals from the accumulated corpus.