What qualifies for ill health retirement and how do I apply?

Early retirement due to ill health

If you have a personal pension (from a workplace scheme, or one you have set up privately) you can usually start drawing from it at the age of 55(www.gov.uk opens in a new tab).

If you have a health condition or disability that makes it hard for you to work or reduces your earning potential, you could be entitled to access your pension pot earlier. This is known as early retirement due to ill health.

What is ill health retirement?

Ill health retirement lets you start claiming your personal pension before the age of 55 (or the scheme’s retirement date) because of a health condition or disability that stops you from working.

You might also qualify for an 'enhanced annuity'. This means that your regular pension payments could be larger than they would otherwise be.

Before we go into more detail about enhanced annuities and how to apply, let’s look at the conditions that qualify for ill health retirement.

What qualifies for ill health retirement?

Many health conditions and disabilities can qualify for medical retirement. The condition you suffer from could be physical or mental, as long as you are unable to do your job because of it.

There are some other general ill health retirement criteria. To qualify, you’ll usually need to show that:

• You have a physical or mental condition that means you can’t continue to do your job (or earn enough money to live off if you’re self-employed).
• Your condition is permanent, so you won’t be able to go back to work in the future.
• There’s no medicine or treatment that could improve your condition to let you do your job.
• You’re not able to work part-time instead of retiring (more on this below).

If these four criteria apply to you, then you should be eligible for ill health retirement. That said, different pension schemes have different ill health retirement criteria(www.moneyhelper.org.uk opens in a new tab). Talk to your pension provider to find out if your condition entitles you to retire early.

Retiring with a terminal illness

You may be able to retire and take your whole pension pot at once if you suffer from a terminal illness and your life expectancy is less than a year.

You could access your whole pension tax-free if the following apply to you:

• You’re under 75.
• You’re expected to live less than one year due to a serious illness (and this has been confirmed by a doctor).
• Your pension savings amount to less than your lump sum and Death Benefit Allowance(www.gov.uk opens in a new tab.

If you’re over the age of 75, or your total pensions savings are more than the lump sum and Death Benefit Allowance, you may have to pay Income Tax(www.gov.uk opens in a new tab) on the amount you receive.

Some pension providers will keep at least 50% of your pension pot to give to your spouse or civil partner – speak to your provider to find out if they do this.

Could I receive an enhanced annuity?

When retiring early due to a health condition that shortens your life expectancy, you could also be entitled to receive an enhanced annuity. This is sometimes called an 'impaired life annuity'. In this case, the income from your pension will be higher to account for the fact that your life expectancy is lower.

It’s worth checking whether your condition entitles you to an enhanced annuity. Many different health conditions mean you can draw a larger income for your pension, as well as certain lifestyle factors like being a smoker. Your pension provider will be able to confirm if an impaired life annuity is possible in your case.

Check that you can afford to retire early

Before you make any plans to take ill health retirement, it’s a good idea to make sure that you can afford to retire early. Bear in mind that your pension pot may need to last longer if you start drawing from it at an earlier point than you’d originally planned.

You could carry out your own financial health check. To work out how much money you’ve got to fund your retirement, add up the value of your personal and company pensions, as well as any other savings and investments. You could ask a financial adviser to help with this.

The Pensions and Lifetime Savings Association suggests that an income of around £31,000 a year can give a moderate standard of living in retirement(www.retirementlivingstandards.org.uk opens in a new tab).

What if I can’t afford ill health retirement?

If you’re unable to afford medical retirement, there are other options to consider. For example, you could talk to your employer about the possibility of flexible or part-time working. This could allow you to continue earning despite your condition.

If you have a disability or health condition, your employer must make ‘reasonable adjustments’ so that you can work comfortably. You can make any reasonable request that would make it easier for you to continue working. This includes changes to your working hours and workplace.

Of course, you may have no option but to retire early if your health condition prevents you from working at all. In a situation like this, you may want to think about your finances carefully and start planning for retirement as soon as possible.

You could look for savings you can make to ease the transition into ill health retirement. You might also find that you’re eligible for additional sources of income due to your health condition, such as Employment and Support Allowance. (More on this below).

See our guide to planning for retirement for more helpful tips.

How to apply for ill health retirement

If you’re eligible and can afford to retire early, you can submit an application for ill health retirement. The process differs depending on your pension scheme. You can ask your provider to explain the ins and outs.

Your application to get medical retirement is likely to involve these steps:

1. Contact your pension provider to find out if you’re eligible, and ask for an ill health retirement application form.
2. Get medical proof of your condition. The application form will tell you what type of proof you need. This is usually a doctor’s signature on the form itself, a signed letter, or an independent medical assessment.
3. Ask your employer to confirm that your health condition is the only reason for your retirement.
4. Fill out and submit the application form. You’ll also usually need your National Insurance number, plus information about your job and your condition.

When you hear back from your pension provider, they will either confirm your medical retirement, ask for more evidence, or reject your request.

What can I do if I’ve been refused ill health retirement?

If you have been refused ill health retirement, your pension provider must provide you with the reason(s) why. You’ll then be able to submit an appeal.

As part of your appeal, you might need to provide more information or evidence. Make sure you send your appeal form with any extra requirements before the deadline set by your provider.

Can I get my State Pension early due to ill health?

No, you can’t claim your State Pension early even if you are eligible for medical retirement. You could be able to claim some other state benefits as a result of a health condition or disability, including:

• Universal Credit(www.gov.uk opens in a new tab)
• Council Tax Reduction(www.gov.uk opens in a new tab)
• Employment and Support Allowance(www.gov.uk opens in a new tab) (the replacement for Incapacity Benefit(www.gov.uk opens in a new tab))

Take a look at our guide to retirement ages to find out when you can start drawing your State Pension

Employment and Support Allowance

Employment and Support Allowance (ESA) replaced Incapacity Benefit(www.gov.uk opens in a new tab) in 2008. ESA provides you with money to help with living costs if you’re unable to work. The programme will also give you the support you need to get back into work if you’re able to.

To get ESA, you’ll need to have worked as an employee or been self-employed. You'll also need to have paid National Insurance contributions in the last two to three years.

To find out if you’re eligible and apply, visit the gov.uk ESA page(www.gov.uk opens in a new tab).

Continue reading

Found this guide useful? Explore more of our retirement guides, such as:

• Our simple guide to retirement
• What to do if you haven’t saved enough for retirement
• Managing your money more carefully in later life

Services you might be interested in

At SunLife, we offer a range of services that could be helpful as you approach retirement age and beyond:

• Over 50s life insurance
• Equity release
• Guaranteed Inheritance Plan

Visit these pages for more information or get in touch today to find out how we can help.

Sources

^[1] Gov.uk – Early retirement, your pension and benefits(website opens in a new tab)

^[2] Gov.uk – Employment and Support Allowance (ESA)(website opens in a new tab)

^[3] Gov.uk – Defined contribution pension schemes(website opens in a new tab)

^[4] MoneyHelper.org.uk – Ill-health retirement: early medical retirement(website opens in a new tab)