What if NPS savings could cover your health expenses? PFRDA has a new scheme for that

Many individuals stop themselves from saving for retirement through long-term instruments like the National Pension System (NPS), thinking it isn't flexible enough to help them fund unforeseen events such as critical health emergencies. Although health insurance plans offer support during such situations, healthcare expenses often force policyholders to exhaust their emergency funds, sometimes even withdraw money from their retirement savings schemes, which generally do not allow such withdrawals easily.

What if the retirement savings scheme itself could help investors take care of health-related emergency expenses while still allowing the remaining balance grow for their sunset years? The Pension Fund Regulatory and Development Authority (PFRDA) has just launched a scheme aimed at doing exactly this, albeit on a small scale; just to test the market.

Named NPS Swasthya Pension Scheme (NPS-SPS), PFRDA has introduced this scheme as a Proof of Concept under the Regulatory Sandbox Framework.

"With a view to examine the feasibility of integrating health-related benefit mechanisms with the existing NPS architecture and to assess the associated operational, technological and regulatory aspects, the Authority has decided to permit the introduction of NPS Swasthya Pension Scheme (‘Scheme’) as a Proof of Concept (‘PoC’) on a limited and controlled basis under the Regulatory Sandbox Framework, subject to the terms and conditions specified herein," PFRDA said in a circular dated January 27, 2026.

This article explains key details of the experimental scheme

What does this scheme aim to do, and who can participate?

According to the regulator, the NPS-SPS will be introduced as a specific sector scheme under the NPS. The scheme intends to exclusively provide financial support for out-patient and in-patient medical expenses. Pension Funds will be allowed to launch NPS-SPS schemes within the framework of the recently introduced Multiple Scheme Framework (MSF).

NPS-SPS will be a contributory pension scheme, governed by the provisions of section 12(1)(a) and section 20 of the PFRDA Act and it will be offered to citizens on a voluntary basis.

PFRDA says the new scheme will be launched by Pension Funds strictly as a Proof of Concept for a limited duration. It will operate in a controlled environment under the Regulatory Sandbox Framework.

Pension Funds may collaborate with FinTechs and other such entities for carrying out such PoC. Moreover, the regulator has relaxed the provisions of PFRDA (Exits and Withdrawals under NPS) Regulations, 2015, for this PoC.

Before launching the NPS-Swasthya Pension Scheme, pension funds will have to ensure the readiness of all systems, including intermediaries and service providers, including the Central Recordkeeping Agency (CRA) and Health Benefit Administrator (HBA)/Third Party Administrator (TPA),

Further, they will have to disclose all material information relating to the Scheme, including but not limited to benefits, fees, claim processes, grievance resolution and exit provisions, clearly and transparently. The Pension Funds in consultation with the HBA may offer additional value-added features to subscribers.

What if the experiment fails?

NPS-SPS will be initially Pension Funds as a Proof of Concept in collaboration with CRA and HBA/TPA, for a limited duration and with a restricted number of subscriber registrations.

"Upon completion of the PoC period, if the viability/feasibility of Scheme could not be established, the subscribers onboarded during PoC period shall be provided an option to transfer their accumulated corpus from the NPS Swasthya Pension Scheme Account to the Common Scheme Account and thereafter exercise exit in accordance with extant PFRDA (Exits and Withdrawals under the NPS) Regulations, 2015," the regulator said.

• Eligibility: Any Citizen of India

• Fees and charges: To be governed by NPS-MSF. Charges will include charges payable to the HBA.

• Contribution limit: No maximum limit

• Investment of contributions: Pension Funds can invest contributions as per the investment guidelines prescribed under the MSF.

• Transfer of contributions from the common scheme: Non-government subscribers, aged above 40 years, will be allowed to transfer up to 30% of their self contributions from the Common Scheme account to the NPS-SPS account.

How much withdrawal will be allowed to subscribers?

Under NPS-SPS, subscribers will be allowed to make partial withdrawals from their accounts to meet outpatient or inpatient medical expenses as and when such expenses arise.

"At any instance, withdrawal shall be permitted up to 25% (twenty-five percent) of the subscriber’s own contributions made to the Scheme, in accordance with the provisions of the PFRDA Act, 2013," the regulator said.

However, there will be no restriction on the number of partial withdrawals and no minimum waiting period will apply, provided that the first partial withdrawal will be permitted only after the accumulation of a minimum corpus of ₹50,000 under the Scheme.

The scheme will also allow premature exit for critical medical treatment.

"In case of inpatient medical treatment where medical expenses in a single instance exceed 70% (seventy percent) of the total corpus available in the subscriber’s NPS Swasthya Pension Scheme Account, the subscriber shall be permitted to undertake a premature exit with 100% (one hundred percent) lump sum, irrespective of the corpus size, solely for meeting such medical expenses," PFRDA said.

How the claims will be settled?

According to the regulator, amounts withdrawn or exited will be remitted directly to the concerned HBA/TPA, as applicable, based on valid claims and supporting invoices.

Any surplus amount remaining after settlement of medical expenses will be transferred to the subscriber’s Common Scheme Account.