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
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
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.