The Pension Fund Regulatory and Development Authority (PFRDA) on Tuesday launched the Swasthya Pension Scheme, a pilot initiative under the National Pension System (NPS) that allows subscribers to use a portion of their pension savings to meet medical expenses.
The scheme, introduced as a proof of concept under PFRDA’s regulatory sandbox framework, aims to tackle a key gap in retirement planning, rising healthcare costs that often force retirees to exhaust savings meant for old age.
PFRDA said it will test the product on a limited scale to assess operational feasibility, consumer behaviour, and risk safeguards before considering a wider rollout.
Medical inflation in India has remained persistently high, while life expectancy continues to rise. For many retirees, healthcare expenses become the single largest financial risk after retirement.
Although the NPS allows partial withdrawals for select purposes, it does not offer a structured mechanism to fund regular or emergency medical needs. The Swasthya Pension Scheme seeks to address this gap by carving out a dedicated health-focused pension corpus within the NPS architecture.
According to PFRDA officials, the objective is to reduce out-of-pocket spending during medical emergencies and prevent households from liquidating long-term retirement assets prematurely.
The scheme is voluntary and contributory. Eligible NPS subscribers can opt in and make contributions to a separate Swasthya Pension account managed by approved pension funds under the multiple scheme framework.
Subscribers can withdraw funds to cover both out-patient and in-patient medical expenses, subject to defined conditions such as minimum corpus thresholds. The scheme allows early withdrawal with a lump-sum payment when treatment expenses for critical illness exceed 60 percent of the total accumulated benefits.
The pilot phase allows pension funds to collaborate with fintech companies and health administrators for claims management and verification, and technology systems development.
Policy experts see the scheme as an attempt to introduce flexibility into India’s traditionally rigid pension system. PFRDA has established a direct connection between healthcare requirements and retirement funds, which enables the agency to create pension systems that deliver measurable results.
The analysts predict that continuous medical withdrawals will decrease retirement funds because current protective measures do not meet the required standards. PFRDA said it will rely on data from the pilot to refine withdrawal rules and risk controls.
For now, the regulator has positioned the Swasthya Pension Scheme as an experiment, one that could reshape how pensions respond to real-life financial shocks.