Ill health retirement criteria differs between pension plans.
- If you’re under your pension plan’s prescribed pension age, you may need to provide medical proof of your condition (and how it impacts your employment).
- You may need to have paid into the pension for a minimum number of years.
Is it possible to work flexibly or part-time instead?
Before making a decision about your retirement, it’s important to consider all your options. This might include a new, flexible way of working such as working part-time or fewer hours instead of retiring, depending on any adjustments your employer can make.
If you have a health condition or disability, your employer can be legally obliged to make ‘reasonable adjustments’ to help you carry on working, without a disadvantage. This might include changes to your working hours or set-up, for example, and you have the right to ask for these.
Your employer must deal with your request in a ‘reasonable manner’ – for definitions and examples of what this means, along with more information, read up in gov.uk’s flexible working centre.
Could voluntary redundancy be an option?
Voluntary redundancy or ill health retirement – depending on the circumstances, your employer might offer redundancy as an alternative option.
Make your decision carefully
Never feel pressured into accepting voluntary redundancy. You’re protected by anti-discrimination laws if you have specific health conditions or a disability.
Once you’ve considered all of your alternatives, it’s important to weigh up the benefits of voluntary redundancy. One of these might be redundancy pay, and you’ll need to be clear on how much this will be, and the tax arrangements for it. You’ll also need to budget carefully and well in advance, if redundancy pay will be your main source of income.
Ill health and defined benefit pension schemes (final salary pension schemes)
Defined benefit (DB) pension schemes – also known as ‘final salary’ pension schemes – are workplace pension schemes that pay a retirement income based on salary and how long you’ve worked for your employer.
How to retire on ill health grounds in a DB scheme
Some final salary pension schemes will allow early pension payment due to permanent ill health. It’s important to get all the facts off your employer, however, as some schemes will reduce the pension you get, as you won’t have as long to grow your pot.
Others won’t make this reduction, and may even increase your pension if, for example, your condition is terminal. It’s best to speak to your employer to get confirmation.
Ill health and defined contribution pension schemes
A defined contribution (DC) pension is the most common type of pension. If you’re in a DC scheme, the amount your pension is worth at retirement depends on how much money you’ve contributed, and how your investments have performed.
How to retire on medical grounds in a DC scheme
For DC pension scheme members, ill health may make it possible for you to retire and withdraw your money, regardless of your age. This could be in the form of a pension, or even as a tax-free cash sum and reduced pension. Check the terms and conditions – they should set out the circumstances that unlock early pension access (usually as ‘qualifying conditions’).
For instance, as a defined contribution pension provider PensionBee has some conditions of our own, such as:
- You must not currently be in work due to either physical or mental impairment
- You must not be able, nor intend to return to work
- We must receive written confirmation from a fully registered medical practitioner that you are incapable of working now or in the future in any job due to either physical or mental impairment
Find out more about the PensionBee process and how to make an early withdrawal on ill health grounds.
Ill health and the State Pension
Your State Pension works differently to a workplace scheme, and regardless of ill health, you can’t get an early state pension before you’re a certain age – use the government’s calculator to see your up-to-date State Pension age (bear in mind, the State Pension age is under review and may change in the future).
You might not be able to access your State Pension quite yet, but help with the cost of living is available for many people, from the government. Key benefits to look into are:
- Statutory Sick Pay (SSP)
- Employment and Support Allowance (ESA)
- Universal Credit (UC)
Check your eligibility using a benefits calculator (listed on gov.uk but independent, free and anonymous).
Calculate how much income you’ll have if you retire early
Your retirement income might come from a combination of different sources, especially if you’re retiring early due to ill health. From a workplace or personal pension to government benefits and allowances, plus the State Pension, here are the key factors to build into your calculation.
Workplace and personal pensions
You can stop working at any age, but most workplace pension schemes won’t let you access your pension until you’re aged 55. If you’re retiring due to ill health, or you’re terminally ill, you may be able to take your workplace pension earlier than this.
Once you’ve spoken to your pension provider, are clear on their rules and have confirmed how much your pension is worth, you’ll have this first part of your ill health early retirement calculation.
Ill health (or a shorter life expectancy) may mean you’re entitled to an increased income, known as an ‘enhanced annuity’, so you’ll need to ask about this and factor it in too.
This part of your calculation will depend on your State Pension age, which is the earliest age you can start receiving your State Pension (regardless of ill health). It’s based on your gender and date of birth and is currently under review.
Your other income
If you’re disabled or have a long-term health condition, you may be entitled to certain benefits and allowances, such as Attendance Allowance or Personal Independence Payment (PIP).
There are other government benefits available, including Universal Credit, Employment and Support Allowance (ESA) and help with housing costs. Your eligibility will depend on your age, employment status and other circumstances, and you can get the full overview for disability and sickness benefits from the government’s website.
Impaired life annuity
A pension annuity is a financial product you can buy with some or all of your pension savings when you retire. It pays you a guaranteed income for a fixed period, or for the rest of your life.
Some annuity providers offer an impaired life annuity, designed specifically for people who have a shortened life expectancy due to a medical condition. To qualify, you’ll need to complete a medical history questionnaire, and in some cases provide further information from your doctor or attend a medical retirement examination.
Using the information you’ve provided, your provider will then offer an annuity rate based on an estimate of your life expectancy.
Speak to a financial adviser
Qualifying for ill health retirement, annuities and pension calculations can be complicated. It’s very important that you get expert advice before making a decision. A good starting point might be an online site, like The Pensions Advisory Service.
Many people choose to pay an independent financial adviser (IFA), who’s authorised to give you pensions advice. If you’re over 50 you’re also eligible for a free pension guidance session from Pension Wise – these last 45-60 minutes and will help you make sense of your retirement and pension options.
PensionBee is non-advisory, which means we don’t give pensions advice or offer personal recommendations. Speaking to an IFA will mean you’re getting qualified, expert guidance, and our website provides lots of information about finding an IFA, and other important pension topics.
Combine different pensions together
If you want to consolidate your pensions into one plan before taking ill health retirement, PensionBee can help. PensionBee is a leading online pension provider that makes it easy to combine, contribute and withdraw from your pension online.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 19-11-2020