From NSP Swasthya Pension Scheme to new products: How PFRDA is revamping the NPS

The Pension Fund Regulatory and Development Authority (PFRDA) has recently launched a pilot project, NPS Swasthya, a product aimed at helping NPS subscribers meet medical expenses using a portion of their accumulated retirement corpus. According to PFRDA Chairman S. Ramann, three pension fund managers are currently experimenting with products linked to this initiative.

At present, the scheme is at a proof-of-concept stage. NPS subscribers above the age of 40 can transfer up to 30 per cent of their total contributions from their common scheme account to the Swasthya account, from which withdrawals can be made exclusively for medical expenses.

“We are experimenting. One experiment is being run by ICICI Pension Fund, another by Axis, and one by Tata Pension Fund,” Ramann said during an interaction.

Rising healthcare costs and inadequate health insurance coverage remain major challenges for many Indians. Ramann believes the NPS Swasthya Pension Scheme could help bridge this gap.

“Many people do not buy health insurance at a young age. By the time they reach 50, it becomes difficult to get coverage. So, we want them to save money in a medical pension scheme, where the savings are dedicated solely to medical expenses,” he said.

In recent years, the National Pension System has undergone significant changes — from allowing investments in gold and silver ETFs to sharply reducing the mandatory annuity requirement. The regulator is now exploring assured return products for retirees and opening new investment avenues for pension fund managers to make the NPS more attractive.

Last month, PFRDA constituted a Committee of Investment Experts for Strategic Asset Allocation and Risk Governance to review and modernise the NPS investment framework.

“In many global jurisdictions, pension funds are allowed to invest in real estate. That is not permitted in India due to development-related risks. We have brought in experts from India and overseas to evaluate potential guardrails,” Ramann said.

Earlier, at least 40 per cent of the accumulated corpus had to be invested in annuities upon retirement at 60—one of the reasons many investors stayed away from the NPS. This mandatory requirement has now been reduced to 20 per cent for non-government subscribers to improve liquidity. Going forward, subscribers may also get the option of assured pension payouts for a fixed period.

While Ramann supports annuities for ensuring regular income, he also favours competitive payout products.

“We are building competitive pension payout products so people can choose between annuities and pension payouts. Transparency is critical so subscribers clearly understand what they are opting for,” he said.

An internal committee has also been set up to design a framework for minimum assured return schemes. Any such product would require guarantees, similar to the Unified Pension Scheme (UPS) for government employees. Creating comparable options for all citizens remains a key challenge, Ramann added.