What is ill health retirement?

Ill health retirement will allow you to access your pension early because of poor health.

In normal circumstances you can only retire from your Normal Minimum Pension Age (NMPA), which is currently from age 55 onwards. The NMPA is rising from 2028 to age 57, however if you qualify for ill health the NMPA does not apply-and in theory you can apply at any age for an ill health pension.

What might I receive?

If you qualify for an ill health award, what you will receive will depend on the type of workplace pension scheme you are currently contributing to or have contributed to in the past.

Defined Benefit (DB) pension schemes (also known as Final Salary or CARE arrangements) generally provide you with a regular income, for the duration of your lifetime, if you are forced to retire earlier  than the Schemes Normal Pension Age (NPA) due to ill-health. Usually, this type of pension is reduced if it is paid earlier  than the NPA however many schemes of this nature will not reduce your pension if it is taken on ill health grounds.

If your life expectancy is less than one year, the Scheme’s rules will generally allow you to take the whole value of your pension as a tax-free lump sum (subject to certain allowances/restrictions).

Defined Contribution (DC) pensions (the newer type of workplace pension schemes) where you build up a pot of money for your retirement, will normally provide you with a lump sum payment reflecting what has built up in your pension pot-and generally the same options will be available as if you had retired from age 55 onwards. If you decide to use some or all your pension pot to provide you with a regular income for the rest of your life -you might be able to purchase an “impaired life” annuity which will give you an enhanced income as you will not be expected to live as long.

Again, if your life expectancy is less than one year. The Scheme’s rules will generally allow you to take the whole value of your pension as a tax-free lump sum (subject to certain allowances/restrictions).

Can I access my state pension early due to ill health?

The quick answer to this is no. You can only access your State pension, from your own State Pension age, you can check your State Pension age here: -

https://www.usdaw.org.uk/Help-Advice/Pensions/Puzzled-by-Pensions/When-will-I-get-it

Although you are unable to access your State Pension early you might be entitled to some other State benefits such as:

• Statutory Sick Pay
• Employment and Support Allowance; or
• Universal Credit

To check if you might qualify for State Benefits check the Money Helper Benefits calculator here:-

https://www.moneyhelper.org.uk/en/benefits/benefits-calculator

Remember that if you do claim an ill health pension this could have an impact on your eligibility for claiming state benefits.

How do I claim an ill health pension?

Your workplace scheme will potentially only pay you an ill-health pension if your condition is permanent and your condition prevents you from doing your own job or sometimes taking on any other job in future.

Every pension scheme has its own Rules, and these will set out the criteria for ill-health retirement.

Ill-health pensions can be accessed from any age, and this is why the bar is set quite high to qualify.

Every scheme will have a formal process to follow if this is something you wish to pursue.

Medical evidence of your incapacity will be needed, and the pension scheme trustees will want proof that your condition is permanent. Sometimes the company’s consent is needed as well as the trustee’s.

Other Considerations

Always take time to consider your options.

• If you are disabled or have a health condition your employer must make reasonable adjustments, so you are not disadvantaged in the workplace.
• Some employers, instead of providing ill-health pensions, may set up a Permanent Health Insurance policy with an insurance company that will pay you an income whilst you are off sick. Some policies will provide cover up until your normal retirement date and some may restrict cover for a specified amount of time, for example three years. Some companies will provide a Critical Illness policy. Also taken out with insurance companies these policies are usually more affordable for employers because they only pay out a lump sum in cases of the most serious illnesses such as a stroke or cancer.
• Other income may also be available to you. If you have extra costs associated with being disabled or having a long-term health condition you might be eligible to claim Personal Independence Payment (PIP).

Check whether there is any support you can claim to replace your lost earnings if you have little or no pension income-for example Employment and Support Allowance. Help might also be available with your essential costs too-for example Housing Benefit.
 
To find out where you can get help and advice about benefits visit the Money Helper website here:-

https://www.moneyhelper.org.uk/en/benefits/problems-with-benefits/where-to-get-help-and-advice-about-benefits