NPS Update: A significant change has been made to the National Pension System (NPS), launched in 2004 to provide financial security after retirement. NPS now offers not only a pension but also medical expenses. The Pension Fund Regulatory and Development Authority (PFRDA) has launched a new initiative called the NPS Health Pension Scheme.
The objective of this scheme is to allow individuals to use their pension savings for medical needs. It is currently being tested on a limited scale as a pilot project under the regulatory sandbox system. The objective is to understand how NPS can be linked to health expenses to reduce the financial burden on individuals during treatment.
What is the NPS Health Pension Scheme?
This scheme is being launched as a special sector scheme under the National Pension System. Through this, individuals will be able to use the money deposited in the NPS for medical expenses such as hospitalization or medical treatment. In a circular issued on January 27, 2026, the PFRDA stated that the scheme will operate under a multiple scheme framework and will focus on outpatient and inpatient treatment.
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How the Scheme Works
The NPS Health Pension Scheme will be contribution-based, meaning benefits are based on the amount of money deposited. This scheme will be operated under the prescribed provisions of the PFRDA Act and will be available voluntarily to Indian citizens. In the initial phase, it will be implemented only as a proof-of-concept for a limited period. During this period, it will be tested in a controlled environment in collaboration with pension funds, fintech companies, and other institutions.
Key Features of the Scheme
Any Indian citizen can join this scheme. If an individual does not already have a common scheme account under the NPS, they will need to open one to join the Health Pension Scheme. All charges associated with the scheme will be determined in accordance with the Multiple Scheme Framework and will be clearly disclosed in advance.
Subscribers can contribute any amount to this scheme as per their capacity, provided they comply with the existing NPS regulations for the non-government sector. Deposits in this scheme will be invested in accordance with the investment guidelines set by the pension fund.
Money Transfer and Withdrawal Facility
Subscribers above 40 years of age, who are not associated with the government sector or government-owned companies, can transfer a maximum of 30 percent of their or their employer’s contribution from the common scheme account to the NPS Health Pension Scheme account.
Subscribers will be allowed to make partial withdrawals from their Health Pension Account for medical needs. They can withdraw up to 25 percent of their deposited amount at any time. There will be no limit on the number of partial withdrawals, and no waiting period is required. However, the first withdrawal will be possible only if a minimum deposit of ₹50,000 has been made in the account.
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Know when you can withdraw the full amount
If hospital expenses incurred during treatment for a critical illness exceed 70 percent of the total amount in the Health Pension Account, the subscriber will be allowed to withdraw the entire balance in one go. This facility will be available regardless of the corpus amount, provided the funds are used only for specified medical expenses.
How will claims be settled?
The amount withdrawn for medical expenses will be remitted directly to the relevant Health Benefit Administrator or Third Party Administrator. This payment will be made based on valid medical bills and claims. Any excess amount remaining after treatment will be transferred back to the subscriber’s Common Scheme Account.