What Qualifies For Ill Health Retirement?
Early retirement is a goal for many people, but it can be essential rather than just desirable if you need to leave work due to ill health. Retiring early often raises concerns about long term income sources, especially as the State Pension cannot be claimed until normal pension age.
Typically though, you can gain access to money in your workplace or private pension scheme from the age of 55. But what happens if you’re facing ill health retirement before you reach 55?
If you’re suffering from a disability or health problem that makes working difficult, the good news is that it’s often possible to access your pension scheme before you reach 55 years old.
This will allow you to retire early. Nevertheless, there are strict criteria that must be met to qualify for ill health retirement. Most importantly, you’ll also need to take advice from independent financial advisers to ensure that you have enough money to support you for the rest of your retirement.
What is early retirement due to ill health?
Early retirement due to ill health, also known as ill health retirement or being medically retired, means you can claim your pension before you’ve reached 55 years of age (or the ordinary retirement age of your pension scheme) because of disability, sickness or a medical condition.
Usually, the condition will be so severe that it means you’re unable to continue working in your regular job or that it will seriously reduce your potential to earn sufficient money to support you. Some pension schemes also have criteria of their own that you must meet to be entitled to draw on your pension earlier than the normal pension age.
If you have an illness, disability or health condition, you’re entitled to ask your employer for reasonable adjustments to be made so that you aren’t disadvantaged in your employment because of your health condition.
Should those adjustments enable you to continue working in your job for your employer, you may be able to avoid early ill health retirement. But there are several conditions for which no adjustments can be made. In such cases, the best thing to do would be to apply for ill health retirement. You can make enquiries with your pension provider about whether you meet their criteria to claim your pension funds at an earlier date than expected due to your medical circumstances.
Which conditions would entitle me to ill health retirement?
Ill health has several different definitions. This means that different pension schemes have different criteria and rules for those who need to take early retirement on ill health grounds.
Usually, to make an ill health retirement application, you will need to:
- Provide evidence from medical advisers that you are in permanent ill health (either mentally or physically), which renders you unable to carry on working in your job.
- Show medical evidence that no further medication or treatments are available, which would enable you to return to work before the date when you would typically retire. This could apply to either your current position or alternative employment. Pension schemes usually also consider if you’re working part time or full time for your employer and may suggest, at least initially, that you switch to part time employment as a possible solution. Alternatively, you may liaise with your employer’s occupational health department to develop a new working schedule.
- Complete the application form while you’re still in pensionable employment to receive maximum ill health benefits. This isn’t essential; however, it’s the recommended course of action.
Pension scheme providers these days are putting more emphasis on reasonable adjustments and rehabilitation so you can return to work. This means that if your employer and their occupational health team can find a way of facilitating your return to employment, your claim may not succeed.
Nevertheless, if your employer can only offer you fewer hours or a different type of employment with pay, you may still be able to apply for an ill health pension and retire early from your current position.
If your doctor and medical advisers have informed you that you have a life expectancy of under 12 months because you are terminally ill, you may be able to access your entire pension pot as one tax free lump sum (so long as you’re in a defined contribution pension scheme).
To do this, you must be under the age of 75. If you are over 75, you’ll be taxed on the lump sum in the same way as ordinary income. To do this, though, your pension scheme provider will require medical evidence from your doctor that you are in such ill health that you are unlikely to live beyond 12 months.
What about my state pension? Can I claim it early if I’m in ill health?
Unfortunately, there is no such thing as ill health retirement when it comes to claiming your state pension. You cannot receive it before you reach state pension age, and this applies even if your life expectancy is less or you are in ill health.
There are benefits you may be able to claim on health grounds though, which may help with day-to-day living expenses during your retirement.
If you suffer from a severe mental or physical condition, you can check which state benefits you could be eligible for. Employment and Support Allowance, Statutory Sick Pay and Universal Credit may all be options for you.
Each of the benefits comes with its own criteria, and you will require copies of various records to apply. These include:
- Evidence of any savings you have
- Payslips or proof of your income (and your partner’s if you have one)
- Evidence of your existing pensions scheme and benefits (and those of anybody living with you)
- Details of your outgoings
- A council tax bill
If I retire on illness grounds can I claim any benefits?
Some pension schemes allow you to access your retirement funds in their scheme before their usual retirement age if you’re suffering from a medical condition.
You may also be able to be paid higher payments or receive tax credits benefits.
If you’ve got a workplace or personal pension, you may get your pension as a full tax free lump sum if you can meet their essential criteria. You won’t be able to get any state pension related benefits until you’ve reached state pension age, though.
If you’ve got little or no pension savings, you might be able to get a state benefit like ESA or a reduction in council tax. This might help you with your daily cost of living.
How do I get my pension early if I’m in ill health?
All pensions have their own procedures, criteria and benefits, and you’ll need to complete different paperwork.
You’ll also need to speak with your pension provider to ask what they require from you. It’s a good idea to consult with an independent financial adviser who can guide you step by step through the pensions process and ensure that you are aware of your rights, accurately completing each stage.
The steps you need to complete usually include:
- Completing your pension scheme’s application form.
- Obtaining medical evidence to confirm your condition.
- Getting confirmation from your employer that you are only returning for medical reasons.
After you or your financial adviser apply on your behalf, you’ll either be awarded the benefit, you’ll be asked to provide more proof, or your application will be rejected.
If you’re rejected, you must be given detailed reasons, which will allow you to appeal if you disagree with their decision. If you decide to appeal, you must do it within a specified timeframe. You may also give more medical proof to accompany your pension appeal.
Can I get an enhanced annuity?
People suffering from qualifying conditions may be allowed to make an application for an enhanced annuity.
This will pay you a higher rate of guaranteed income since your life expectancy will probably be lower than average. Several lifestyle factors and health problems may qualify you to receive an enhanced annuity, so seeking financial advice from a professional adviser or advisory service is a good idea to find out if you can take advantage of this option.
Am I in a good financial position to retire early because of poor health?
If you’re suffering from such a severe condition that you can no longer continue working in your regular employment, realistically, you’ll have no other option but to retire. But it’s still important to look at all aspects of your life to determine which savings and changes you need to make to quit working for good.
Bear in mind that if you decide to draw from your pension early, the money will usually need to last for longer than usual.
Health conditions that prevent you from working may not always shorten your lifespan. Therefore, you need to work out how to make the money you’ll be paid out last for longer. You may also need to consider other potential income sources like equity release or remortgaging your home.
Once you’re aware of the amount of income you’ll be able to make from your assets and pensions, you’ll be better able to see how many other spending adjustments you’ll need to make to ensure your lifestyle benefits.
Your financial adviser will be able to offer guidance with these changes and give you helpful advice about how to maximise your assets and minimise your risk as you enter early retirement.