NPS Swasthya Pension Scheme: Who Should Opt In

The Pension Fund Regulatory and Development Authority has rolled out the NPS Swasthya Pension Scheme (NSPS) on a pilot basis, attempting to link retirement savings with healthcare spending. While the concept promises flexibility for medical expenses, personal finance experts caution that the scheme suits only a limited segment of subscribers and cannot replace health insurance.

Who the Scheme Is Designed For

From a financial planning perspective, NSPS is most suitable for existing National Pension System subscribers aged above 40 who already have a substantial NPS corpus. The main benefit is the option to shift up to 30 per cent of the NPS Common Account balance into a dedicated healthcare pool without fresh contributions. Experts note that individuals with chronic conditions such as diabetes or hypertension may benefit, as annual outpatient expenses often range between Rs 15,000 and Rs 30,000. NSPS allows unlimited OPD withdrawals without waiting periods, unlike health insurance where pre-existing diseases may be excluded initially.

Why It Fails as a Health Insurance Substitute

Financial advisers warn that NSPS makes little sense for individuals who already hold comprehensive health insurance cover of Rs 5 lakh to Rs 10 lakh. Locking retirement savings into a low-return, self-funded medical pool carries a high opportunity cost. Subscribers aged 65 and above should also be cautious, as the mandatory minimum corpus of Rs 50,000 can delay withdrawals for several years, reducing its practical utility in advanced age.

Handling Medical Emergencies Under NSPS

The contrast between NSPS and health insurance becomes clear during major hospitalisations. For procedures costing Rs 6 lakh to Rs 8 lakh, health insurance typically offers cashless treatment and direct settlement with hospitals. NSPS, however, requires subscribers to pay expenses upfront and seek reimbursement later. Processing delays of 7 to 15 days can cause liquidity stress when hospitals demand immediate payment.

Important Facts for Exams

• NSPS is a pilot scheme under the National Pension System.
• Up to 30% of NPS Common Account balance can be transferred to NSPS.
• Scheme allows OPD withdrawals without waiting periods.
• NSPS does not offer cashless hospitalisation.

Key Risks and Limitations

Experts flag several risks associated with the scheme. Only 25 per cent of contributions, not the total corpus, can be withdrawn at one time. A single large medical event can deplete the entire healthcare corpus. Returns remain market-linked and may not keep pace with rising medical inflation. Once the catastrophic exit rule is triggered, future medical needs remain uncovered. As experts emphasise, NSPS may complement insurance for select subscribers, but it should never be seen as a replacement for comprehensive health cover.