If you need to give up work due to ill
health, it may be possible to access your pension savings,
irrespective of your age. You should check the terms and
conditions of your own plan for any qualifying conditions.
If you qualify, you can take up to 25% of the
fund value as a lump sum but the balance must be used to provide
you with a pension. You have the same choices as anyone retiring
with a stakeholder or personal pension plan - you can either buy an
annuity or you can transfer into an unsecured pension arrangement
(previously known as income withdrawal or drawdown).
The younger you are when you retire, the smaller
will be your pension pot because you will have had less time to pay
into it and there will be less time for the pot to grow. Also the
annual income that you will receive, either from an annuity or an
unsecured pension arrangement, will be less because it has to be
paid for a longer period of time. If the nature of your illness is
such as to reduce your future life expectancy, it may be possible
to buy an annuity from an insurance company that will take this
into account and pay out a higher annual pension. This type of
annuity is known as an impaired life annuity. If you think this
might apply in your case, you would be strongly advised to get
expert advice on this issue.
In extreme cases the law may allow the whole of
your pension pot to be taken as a lump sum anytime before age
75. Again, you should check the terms and conditions of your
plan for any qualifying conditions. The scheme administrator
must receive evidence from a registered medical practitioner that
your life expectancy is less than a year. You cannot avail of this
facility if you have already started to draw your pension, either
from an annuity or an unsecured pension arrangement.
Provided the value of your fund is less than the
Lifetime Allowance, there will
be no tax charge. Any amount in excess of the Lifetime Allowance
will be taxed unless you have registered for protection.
You can take out insurance that will provide you
with a lump sum or a regular income should you fall into ill
health. These insurance policies are sold under a variety of names,
prolonged disability insurance, permanent health insurance, ill
health insurance, etc. It used to be possible to have such a policy
as part of your personal pension plan but that right was withdrawn
for new policies from 6 April 2001. Those with existing policies at
that time were allowed to retain them as part of their pension
plan.
Q & A's
Yes you can. Normally, early retirement benefits can only be
taken once you have reached 55. However, if you are in poor
health and the terms and conditions of your plan allow it, benefits
may be taken at any time.
You will need to supply your plan provider with medical evidence
of your poor health. If they are satisfied that you are unable to
continue working in your current capacity, benefits may be
paid.
Maybe. Some insurance companies offer impaired life annuities.
These annuities offer improved rates on the basis that the
policyholder's life expectancy is reduced and therefore the pension
will be paid for a shorter period. The provider will want medical
evidence of your shortened life expectancy.
If your provider does not offer impaired life annuities, you may
want to consider taking the open market option. This allows you to
search the annuity market for a better deal. If you find another
provider offering a better deal on an impaired life basis, you may
want to transfer your accumulated fund to take advantage of the
higher pension.
HM Revenue & Customs allows a pension fund to paid as a
one-off lump sum on the grounds of serious ill health if you have a
life expectancy of less than 12 months. If you have medical
evidence that suggest you have a life expectancy of less than 12
months, you may want to consider this option.
If the value of your fund is less than your Lifetime
Allowance, the payment will be tax-free. Any excess over the
Lifetime Allowance will be taxed as an unauthorised payment, unless
protection has been registered.
Your plan provider will need to see the medical evidence before
payment can be considered.
