When things change
Sometimes people need to stop working due to ill health. When this happens it can be difficult to support yourself financially. If you retire early due to ill health, your pension may be able to offer you some financial support to help you cope.
Every year thousands of people in the UK are diagnosed with conditions that prevent them from continuing to work. Many of them take the option of early retirement due to ill health. One consolation is that many are able to take their pension benefits early too, to help them support themselves financially.
Taking an ill health pension
Whether you would be able to do this will depend on your scheme and their definition of what ill health might be. Normally, the usual definition is where “your physical or mental health is bad enough to stop you from carrying on working, or which seriously reduces the amount you can earn.”
Provided you meet the criteria of your scheme, you may be able to take your benefits early – and your scheme may even pay you an ill health pension due to your condition. But this depends on the scheme you are a member of.
If your circumstances are more immediate, you may be entitled to more access to your pension benefits. For example, if you’re diagnosed with a very serious or terminal condition, where your life expectancy is determined to be less than 12 months, you may be able to take the whole of your pension pot as a lump sum. A serious ill-health lump sum paid before you reach the age of 75 will be paid tax-free provided you have available lifetime allowance. If you’re over the age of 75, the lump sum will be taxed at your marginal rate of income tax.
Ill health and Defined Benefit schemes
Some defined benefit schemes will allow your pension to be paid early in the event of permanent ill health, but because this mean that there is less lime for your pension pot to grow, they will reduce the pension that you will get. Many schemes however will make no such reduction.
Others will actually increase the pension if, for example in the case of a terminal condition, it is unlikely that you will be claiming your pension for a long period. Because schemes can have such different rules, its really important that you talk to your scheme administrator as soon as possible. They will be able to provide you with information about your particular schemes rules.
Defined Contribution schemes
If you have a defined contribution (DC) scheme and you need to give up work due to ill health, it may be possible to take your benefits, irrespective of your age. You may be able to take your benefits in a number of ways such as; a pension or possibly a tax-free cash sum and reduced pension. You should check the terms and conditions of your pension arrangement for details about how your scheme works and the options you have available to you if you are unwell. Your scheme should outline under what circumstances you may be able to access your pension early in the event of ill health. They will normally refer to this as “qualifying conditions”.
Impaired life annuity
If your illness is likely to reduce your life expectancy, it may be possible to buy what is called an impaired life annuity. This is a pension payable to you for life, with a higher level of annual income than a standard annuity. Impaired life annuities can be complex and you may need to consider receiving independent financial advice. Before you do, you might want to call one of our team who’ll be happy to talk you through all the options and what the next steps they think you should take.
I’m in a final salary pension scheme and have been refused ill-health early retirement. I’ve complained about the decision without success. What can I do?
Decisions made by the scheme trustees/managers (and/or employer) regarding applications for ill-health early retirement pensions are amongst the most difficult they have to make.
We are not medical experts. We therefore cannot advise whether the medical evidence means an ill health pension is payable. What we can do however, is review the process the decision-maker undertook when reaching their decision. If there are indications that the process was either flawed or incomplete, it may be possible to suggest that the decision-maker reconsiders the application. However, this won’t necessarily result in the decision being altered.
It’s only possible to challenge a decision if it can be shown that the decision-maker failed to:-
- ask themselves the right questions;
- direct themselves correctly in law – in particular, they must adopt a correct construction of the pension scheme rules;
- consider all relevant factors – and only relevant factors - in reaching their decision; and
- make a decision that any reasonable person could make.
If you’d like us to consider your complaint, you will need to send us copies of all relevant paperwork you have on the matter. To find out more about making a complaint, please click here.
My pension scheme won’t explain why they won’t pay me a pension. Can they do this?
Your scheme should give you a clear explanation of why you have not been granted an ill health pension. If it will not do so, we can write to them on your behalf. To find out more click here.
I have made an application but my pension scheme has not replied to me. What can I do?
Deciding upon an ill health retirement application is not straightforward and can take time. Nevertheless, your scheme should acknowledge your application and it’s good practice to keep you informed of what is happening. If you experience any unreasonable delays or are not getting a reply, please contact us.
I have lost my job because of my health, but my pension scheme says I do not qualify for an ill health pension. Is this right?
Being dismissed by your employer for ill health reasons does not necessarily mean you qualify for an ill health early retirement pension. Your eligibility for an ill health pension will depend on the criteria set out in your pension scheme’s rules. If you’re not sure or need anything explaining, you can contact us and we’ll be happy to help.
I have been refused an ill health pension because I have not finished all available treatment options. Is this right?
The fact there may be treatment options available isn’t always a valid reason for refusing to pay an ill health pension. We’d expect that before making their decision, the decision-maker obtained a medical opinion about the likely outcome treatment would have, in relation to your future work capability.
My GP says I’m not fit for work but I’ve been refused a pension – is that right?
Your GP’s opinion is relevant. But, pension schemes will usually ask for more than one medical opinion when making a decision. They might ask for a report from another medical professional, chosen by them. Your pension scheme should also base their decision in accordance with the rules of your pension scheme, something your GP may not be familiar with.
My pension scheme has preferred the medical evidence of a medical professional who has not even seen me. Can this be right?
There is no requirement for a pension scheme to arrange for their medical professional to meet with you. Whether they wish to meet you would be down to their professional judgment. They may consider that the medial reports already provided are sufficient enough to form an opinion. The most important factor in the decision process is that the decision is reached in accordance with the principles above.
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.