If you fall ill and you're unable to work, you may be able to start drawing your retirement benefits early.
Starting your pension early due to sickness
If you fall ill, and you're unable to work and it’s likely that you won’t be able to return to work, you may be able to start drawing retirement benefits from your pension early.
Each scheme has different rules, so you should ask your pension provider or scheme administrator for details. Some schemes may allow you to start drawing benefits early if it looks as if you won’t be able to return to your job due to physical or mental illness, others may require that you won’t be able to do any job, not just your own.
In each case, it’s likely that you will need to provide medical evidence to support your claim to draw retirement benefits early. Your employer or pension provider may also ask you to undergo other tests.
If your employer provides you with an income protection plan (also known as a permanent health insurance plan), or you have your own plan, it’s less likely that you would be able to, or, should draw retirement benefits early as any income you receive from your pension scheme could reduce the payments from the income protection plan.
Defined benefit pension schemes
If you’re a member of a defined benefit pension scheme, the amount that you could receive as an ill-health pension depends on the scheme rules. The maximum possible would be the same benefits that you would have received, had you continued working to your normal retirement date but based on your final pensionable earnings at the date that you start drawing early retirement benefits.
In extreme cases, where your life expectancy is expected to be less than one year, the scheme’s rules may allow you to take the whole value of your retirement benefits as a tax-free cash lump sum.
Defined contribution pension schemes
If you’re a member of a defined contribution pension scheme, the amount you could receive in the event of serious illness depends on the scheme rules. It’s most likely that you would receive the amount that you have in your pension pot, which is probably less than the amount you would receive at retirement. You would have the same options for drawing benefits as you would have at the age of 55.
If you decide to use some or all of your pension pot to purchase an annuity to provide income, an enhanced annuity or impaired life annuity could provide you with higher levels of income than a conventional annuity, but you would need to provide the annuity provider with medical evidence.
If your life expectancy is reduced to less than one year, due to illness, your scheme’s rules may allow you to take your whole pension pot as a tax-free cash lump sum.
Where can I find out more?
If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.