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Sickness

Defined benefit schemes

If you cannot continue to work due to sickness, you may be able to take an early retirement pension. This is generally known as an ill-health pension. Your scheme will have its own definition of what sickness (ill-health) means, but usually you will be considered for an ill-health pension if you are unable to carry out your normal job because you are physically or mentally ill. Some schemes, though, will only consider you for an ill-health pension if you are unable to do ANY job, not just your own job.

Also, usually your sickness must be permanent. This means that you are unlikely to be able to work until you reach your normal retirement age under the scheme.

The basis of the pension will vary. The maximum pension that can be paid is the pension you would have received had you continued in work and in the scheme until the scheme's normal retirement age, but based on your final pensionable earnings at the date of your early retirement.

In extreme cases, where you are not expected to live for long (usually less than a year), you may be able to take your whole benefit as cash. This would depend on the rules of the scheme.  This is often referred to as 'serious ill-health' and special tax treatment applies.  You can find out about it here.

Who decides on whether or not you qualify for a pension due to sickness will depend on the scheme's rules. It could be your employer, or the scheme trustees, or both. However, the decision must be made according to the rules of the scheme and supported by medical evidence. 

Your employer may provide ill-health insurance to replace some or all of your salary if you can't work because you are ill, but do not qualify for an ill-health pension. You can find out more by clicking here.

Defined contribution schemes

If you can't work due to sickness, you may be able to use your pension pot to provide an income, regardless of your age. Each scheme will have different rules, so you should check the terms and conditions of your pension scheme.

You would have the same choices about how to receive your pension as you would if you were opening your pension pot after the age of 55. Click here for details.

If your sickness means that you are not likely to live for long, you may be able to get a higher income from an insurance company in exchange for the money in your pot. This is known as buying an impaired life annuity. Alternatively, you may be able to take the whole of your pension pot as a lump sum, but you need to check the terms and conditions of your scheme.

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