Swasthya Pension Scheme: Eligibility, Benefits & Returns Explained

To start, we would like to outline the importance of the Pension Fund Regulatory and Development Authority (PFRDA) developing the Swasthya Pension Scheme and the consequences it would have on retirement planning in the future, with the focus on the government pension scheme. 

Just like other pension schemes, the PFRDA has stated that while in the positive growing phase of the pension, the retiree will have the ability to address and manage his/her future medical costs. As a result of the pilot initiative, there will be a focus on establishing a health corpus while also building a retiree self-sustaining cash flow value at retirement.

The PFRDA Swasthya Pension Scheme, similar to other health schemes, will be an additional component to conventional health insurance, as it will allow healthcare costs to be drawn in the future while still protecting the self-sustaining cash flow of the retiree. With the rising cost of healthcare, it will be more important to have schemes like this as a factor in secure retirement planning in India.

 

 

What is the Swasthya Pension Scheme?

Swasthya Pension Scheme is a voluntary, health-linked product of the National Pension System (NPS) that falls under the NPS Multiple Schemes Framework (MSF). It is focused on the financial assistance of healthcare expenses at the time of retirement or before that. Members invest in an account specific to the scheme, which is allocated into market-linked investment options that generate returns as per regular NPS.  

This health pension scheme differs from usual health insurance as under the scheme, a corporate account is built exclusively for the member, as opposed to pooling the risk across many members. The scheme allows for medical-related withdrawals to be made before retirement, which is out of the ordinary in the NPS. 

The scheme pilot is in operation with SBI, HDFC, and Axis Pension Funds, and is offered as a pension product in collaboration with various Fintech, Third Party Administrators (TPA), and Health Benefit Administrators (HBA) service providers.  

Eligibility Criteria for Swasthya Pension Scheme  

The most attractive aspect of the PFRDA pension scheme is the wide coverage of the eligibility criteria.  

- Voluntary entrance is open to all citizens of India.  

- A new NPS account under the regular NPS must be opened, or there must already be an active NPS account alongside the Swasthya account.

- Subscribers over 40 years (excluding government employees) can transfer 30% of their self and employer contributions from the common NPS account to the Swasthya account.

They are also free to transfer any self and employer contributions to the Swasthya account, as long as they are 40 and above, with no upper age limit. This can be particularly attractive to middle-aged and senior individuals wanting to protect their pension benefits from health risks, as the minimum investment in some variants is ₹1,000 with no maximum.

How to Invest and Build Your Corpus

To continue adhering to the non-government NPS guidelines, investment in the Swasthya Pension Scheme is also voluntary and can be flexible:

- There are no restrictions on the amount that can be invested, apart from general NPS guidelines.

- Subscribers over 40 can transfer 30% from the common NPS account.

- Investments are made in all classes (equity, debt, government securities) under the MSF guidelines, as with regular NPS.

All these factors are designed to ensure that subscribers are able to save significantly for their retirement and health through long-term investments.

Returns and Investment Performance

Like most pension schemes offered by the government, the Swasthya Pension Scheme does not guarantee returns. The returns will depend on the asset allocation and the market performance. Regular NPS has historically provided annualised returns between 8-12%, depending on the equity exposure and the duration of the investment. The Swasthya variant will deliver similar investment patterns, offering potential for inflation-beating growth.

The Swasthya variant does not provide scheme-specific return data, as it’s a new pilot. Due to the market-linked nature, the investment potential will likely be greater compared to fixed income options. The appeal for retirement planning will be stronger due to the low-cost structure and professional fund management.

 

 

Key Benefits and Pension Benefits

In this health pension scheme, the primary pension benefits revolve around the dual purpose of the scheme.

- Dedicated medical corpus-The funds will be used for OPD and IPD expenses, so the retirement savings will not be affected.

- Flexible withdrawals- Medical withdrawals are allowed to be made up to 25% of own contributions after the corpus reaches ₹50,000. There are no limits to the number of withdrawals, and no waiting periods.

- Premature exit for critical needs- A 100% lump-sum withdrawal is allowed, and the surplus will return to the NPS account if a single hospitalisation is over 70% of the corpus.

- Tax benefits- Most likely similar to the NPS benefits under Section 80C and 80CCD.

- Cashless Possibility- The upcoming framework will enable payments to hospitals through TPAs/HBAs.

This is particularly beneficial for retirees who have to deal with unexpected health expenses.

Charges, Claims, and Withdrawals

Withdrawals are subject to regulation and are easy:

- Partials: Medical expenses are verified for self-contributions to 25%.

- Full premature: Only over large hospitalisation bills (> 70% of corpus).

- Unauthorised withdrawals are processed by HBA/TPA claims, and the funds are directly transferred from the facility.

Charges are per MSF, including HBA additional charges. This is a transparent requirement.

Role of Retirement Planning in India

In retirement planning in India, the healthcare aspect is crucial as there are increased costs associated with it, and also with increased longevity. The Swasthya Pension Scheme is an add-on to regular NPS, Atal Pension Yojana, and PM Vaya Vandana Yojana to include a health component. It imparts a savings mindset for medical emergencies, thereby reducing the burden of finances on lending, voluntary support from family/quasi-family, etc.

It is beneficial for those who are older and have pre-existing health cover, though it is not an alternative to risk-pooling insurance, as many experts indicate.

Limitations to Consider

Like all pilots, this will evolve as progress is made. It does not offer guaranteed returns or cover all risks, like an insurance policy. Takes time to build a sufficient corpus, and the steps to mitigate mobile misuse may add to the operational burden.

 

 

Conclusion

The Swasthya Pension Scheme is a visionary start by the PFRDA to combine ‘retirement planning’ with health insurance. With the facility of flexible contributions, market-linked returns, and withdrawals for medical contingencies, it reinforces pension benefits for millions. If you are serious about all–encompassing retirement planning in India, the PFRDA pension scheme is worth exploring.

Please consult with the PFRDA and your financial advisor to get the updated information as this will be a changing pilot. Create a secure health and wealth future!

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is purely for educational and information purposes only. Always consult your eligible financial advisor for investment-related decisions.

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