Ill health retirement: the qualification criteria explained
If you’re struggling to work due to a health condition or disability, you may be able to claim your pension before the age of 55 and retire early.
However, you’ll need to meet strict criteria, and it’s advisable to get independent financial advice so you can make sure you can afford early retirement without running out of money.
Early retirement due to ill health: what is it?
Ill health retirement, which is also known as being ‘medically retired,’ is when you are allowed to draw your pension before the age of 55 (or the scheme’s ordinary retirement date) due to sickness, disability or another medical condition.
It will usually be a condition that means you can no longer continue to work in your normal job, or one that significantly reduces your earning potential.
Your pension scheme may set its own criteria around the conditions that would allow you to draw your pension early.
You have the right to ask your employer to make reasonable adjustments to make sure you’re not disadvantaged at work as a result of a medical condition or disability.
If you can continue working with these adjustments, you might not need early retirement, but there are many conditions where no such adjustments are possible.
In this scenario, you will need to ask about taking your pension earlier than anticipated.
Ill health retirement: what conditions qualify?
Different schemes have different rules and criteria for ill health retirement.
You’ll usually need to:
· Establish that you’re permanently incapable of continuing your job due to a physical or mental condition.
· Show there are no treatments or medications that could allow your return to work before the normal pension age, which could apply to your current role or alternative employment. Some schemes will consider whether you’re working full or part-time and may suggest part-time work as a solution.
· Apply while you’re in pensionable employment for maximum benefits. While this isn’t essential, it’s recommended.
Many schemes emphasise rehabilitation and reasonable adjustments by employers to enable your return to work.
If your employer is able to help you return to work, your application is less likely to succeed, but if they offer a different role or fewer hours, you may be able to apply for ill health retirement from your original position.
What if I have a terminal illness?
If your life expectancy is less than one year due to a serious illness, you may be able to take the whole of your pension pot as a tax-free lump sum if it is a defined contribution scheme.
You would need to be under the age of 75 to do this (over the age of 75 the lump sum will be taxed like ordinary income), and your doctor will need to confirm your condition.
Can I claim my state pension early due to ill health?
It isn’t possible to get your state pension before the state pension age, even if you have poor health or a shortened life expectancy, but you may be able to get help with day-to-day living costs.
If you have a serious physical or mental health condition, check to see if you’re entitled to state benefits, including statutory sick pay, employment and support allowance, or universal credit.
Each has its own eligibility criteria, and you’ll need copies of the below to apply:
· Income and payslips, including your partner’s
· Existing benefits and pensions, which includes anyone living with you
· Outgoings such as rent, mortgage and childcare payments
· Council tax bill
If I retire due to ill health, what benefits can I claim?
Depending on your pension scheme, a health condition may allow you to access your pension early, or receive higher payments and tax credits.
If you have a personal or workplace pension, you may be able to claim the full lump sum of your pension tax-free if you meet the criteria.
With a state pension, you’ll need to wait until you reach state pension age before getting any benefits.
If you have little or no pension savings, explore other state benefits such as employment and support allowance or council tax reduction.
What is the process for drawing my pension due to ill health?
The criteria and process for each scheme differ, so you need to ask your provider what they need from you.
It’s a good idea to talk to an independent financial adviser (IFA) as they can guide you through the process.
The steps usually include:
1. Fill out a copy of the ill health retirement application form from your pension scheme and provide medical proof confirming your condition. This could be a letter or signature on the application form from your doctor. You may also need an independent professional assessment from medical advisers.
2. Get confirmation from your employer that ill health is the only reason for your retirement.
3. Once your application is complete, your provider will award the benefits, request more evidence, or reject your application. The scheme will need to provide detailed reasons for rejection, so you can appeal if you don’t agree. If you appeal, ensure you do so within the timeframe and remember you may need to provide fresh medical evidence.
Will I be entitled to an enhanced annuity?
You may be able to apply for an enhanced annuity if you have a qualifying health condition, or have done so in the past, or have any lifestyle issues that may shorten your life expectancy.
An enhanced annuity, which is also known as an impaired life annuity, pays a higher guaranteed income than a regular annuity, as you are considered to have lower than average life expectancy.
Various health conditions and lifestyle factors may qualify you for an enhanced annuity.
So, even if you believe you’re in reasonable health when you retire, it is worth talking to a financial adviser to see whether or not you may qualify for one.
Can I afford to retire early due to ill health?
If your health condition is bad enough that it is preventing you from doing your job, then you may not have a choice about whether or not to retire.
However, you can still ask whether you can afford to retire early by looking at other areas of your life, to see what savings you would need to make in order to stop work.
But don’t forget, if you draw your pension early, it may have to last longer than it otherwise would.
A health condition or disability that stops you from working may not shorten your lifespan, so you would need to calculate how to make your pension last long enough.
Unbiased’s pension calculator can help you do this, although you may also want to look at other sources of income such as remortgaging, equity release and downsizing.
Once you know how much income you can generate from your pensions and other assets, you should have a good idea of any adjustments in your spending that you may need to make.
Early retirement due to ill health FAQs
Can I get an ill health pension from a defined benefit scheme?
If you’re suffering from permanently ill health, most defined benefit schemes are likely to pay your pension early.
As this means less time for your pension to grow, some may reduce the pension you will get. It’s worth checking your scheme’s terms and conditions.
Can I get an ill health pension from a defined contribution scheme?
Defined contribution schemes often give you your benefits early in the case of ill health.
You may be given allowed to take your benefits as a pension, or a tax-free lump sum, depending on your circumstances.
But if you are over 75 at the time, then your pension will be taxed in the normal way.
If I become semi-retired due to ill health, can I access my pension early?
You can return to work if you retire from ill health, but if you have begun to draw your pension early due to this, you cannot return to the exact role you retired from, unless you reduce your hours.
While you can return to a new role, remember that returning to work will impact your benefits, so read the restrictions carefully.
Can I claim my NHS pension or teacher’s pension early due to ill health?
NHS workers and teachers in the UK can claim their pensions before retirement age due to ill health, usually without the usual reductions applied to early retirement pensions.
Both have their own rules, criteria and restrictions, so do some research or ask your employer about their policies.
If you have an NHS pension, make sure you get the most of it by getting pension advice from a financial adviser.
If you think you may need to retire early due to ill health, talking to an independent financial adviser is a good idea. Unbiased can quickly connect you to the best financial adviser for you.
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