NPS Swasthya Final Rules: Up to 25% of funds can be withdrawn for health needs; insurance cover of up to ₹30 lakh available..

The pension fund regulator, PFRDA, has notified the final rules for the ‘NPS Swasthya’ scheme under the National Pension System (NPS). The primary objective of these new guidelines is to provide NPS account holders with robust health protection—covering critical illnesses and medical emergencies—alongside their retirement savings. Under this scheme, subscribers will be provided with mandatory health insurance coverage of up to ₹30 lakh, alleviating concerns about the high costs of hospitalization and medical treatment during old age. Additionally, the new rules define the scope and limits for partial withdrawals from the NPS corpus to meet medical needs; account holders can now withdraw up to a maximum of 25% of their total accumulated funds for health treatment. Here are the details.

What is NPS Swasthya?
NPS Swasthya is a healthcare-focused NPS scheme designed to offer the dual benefits of retirement savings and healthcare facilities. Under the final framework, the scheme comprises two distinct components: an NPS Swasthya investment account and a separate super top-up health insurance policy. While purchasing the insurance policy is mandatory for enrollment, the NPS account and the insurance policy remain legally and operationally distinct. Any individual eligible to join the NPS can enroll in NPS Swasthya in accordance with the guidelines.

How much money can you withdraw for medical expenses?
One of the key provisions concerns the limit on partial withdrawals for healthcare purposes. Subscribers can withdraw up to 25% of the contributions made to the NPS Swasthya account to cover eligible healthcare expenses. These may include specified outpatient and inpatient costs. There is no restriction on the number of partial withdrawals, and the PFRDA has not stipulated a minimum waiting period between withdrawals. However, the funds will not be disbursed directly to the subscriber. Payment will be made to the hospital, healthcare provider, or other eligible entity for approved healthcare expenses.

The final rules also include a provision for 'premature exit' in cases where a single eligible inpatient healthcare expense exceeds the amount that could be withdrawn via a partial withdrawal. In such instances, the accumulated NPS Health corpus can first be utilized to cover the eligible inpatient healthcare expense.

What are the rules regarding contributions and insurance?
The minimum initial contribution is linked to the first year's insurance premium. This includes ₹200 (plus applicable taxes) as an annual maintenance charge and ₹1,000 as an investment in the NPS Health account. Subsequent minimum contributions are ₹10.

A charge of up to 0.08% per annum (plus applicable taxes) of the NPS Health corpus may be levied for managing the pension fund scheme. An annual maintenance charge of ₹200 (plus taxes) may also apply.

The insurance component is structured as a 'family floater' plan, covering the subscriber, their spouse, and up to two dependent children; parents are not included. It offers four combinations of total annual deductible and the associated family-floater sum insured:

₹10,000 deductible – ₹1 lakh cover

₹50,000 deductible – ₹5 lakh cover

₹1 lakh deductible – ₹10 lakh cover

₹3 lakh deductible – ₹30 lakh cover

The entry age for subscribers under the standard insurance policy is between 18 and 70 years. Subject to policy terms, premiums, and applicable laws, the policy can be renewed up to the age of 85.

What happens if there are insufficient funds to pay the insurance premium?
It is important for the subscriber to understand this. If the NPS Swasthya balance is insufficient to pay the insurance renewal premium, the pension fund should—wherever possible—alert the subscriber 90, 60, and 30 days prior to the renewal date.

If the premium remains unpaid even after the stipulated grace period and the insurance cover lapses, the NPS Swasthya account will be closed. Subsequently, it will be merged into the NPS scheme under the ‘All Citizen Model’. If the subscriber does not already hold such an NPS account, the NPS Swasthya scheme will be converted into one.

The insurance policy includes an initial waiting period of 30 days, except for accidents specified in the final policy terms. A waiting period of 12 months applies to pre-existing conditions and specific illnesses or procedures, subject to the final insurance policy and applicable insurance laws.

Can existing NPS funds be transferred?
Yes. A subscriber can transfer funds from an existing NPS scheme (under the ‘All Citizen Model’) to the NPS Swasthya account, provided the amount is limited to covering the applicable insurance deductible. The NPS Swasthya account will close upon normal exit, premature exit, death, or if funds are unavailable for insurance renewal. Closing the Swasthya account does not affect any other NPS account held by the subscriber. Therefore, the final guidelines transition NPS Swasthya from the earlier ‘proof-of-concept’ framework...

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