Ill Health

Suffering ill health is not something any of us plan for but can happen, and if it does it can affect your ability to work. We understand this and in certain circumstances your pension can be paid early if you do suffer ill health. This page provides all the information need to know about claiming benefits on grounds of ill health.

Ill Health Retirement – The facts

If you suffer from ill health, you may be able to access your pension before the age of 55 as long as you meet certain criteria. The first step is to speak to your employer (or former employer) as they ultimately make the decision. You may then be asked to get your condition verified by a doctor. The level of benefits payable differs between members still contributing to the pension scheme and members who have already left and hold a deferred pension benefit.

Still Contributing to the scheme

To qualify for ill health retirement benefits you need to have met the 2 year vesting period in the scheme, this means you must have paid into the LGPS with your current employer for at least 2 years, and your employer, based on an opinion from an independent occupational health physician appointed by them, must be satisfied that you will be permanently unable to do your own job until your Normal Pension Age and that you are not immediately capable of undertaking gainful employment.

Ill health benefits can be paid at any age and are not reduced on account of early payment, in fact, your benefits could be increased to make up for your early retirement. There are graded levels of benefit based on how likely you are to be capable of gainful employment after you leave.

Gainful employment means paid employment for not less than 30 hours in each week for a period of not less than 12 months.

The different levels of benefit:

Levels of benefit

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Tier.

1

If you are unlikely to be capable of gainful employment before your Normal Pension Age, ill health benefits are based on the pension you have already built up in your pension account at your date of leaving the scheme plus the pension you would have built up, calculated on assumed pensionable pay, had you been in the main section of the scheme until you reached your Normal Pension Age.

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2

If you are unlikely to be capable of gainful employment within 3 years of leaving, but are likely to be capable of undertaking such employment before your Normal Pension Age, ill health benefits are based on the pension you have already built up in your pension account at your date of leaving the scheme plus 25% of the pension you would have built up calculated on assumed pensionable pay, had you been in the main section of the scheme until you reached your Normal Pension Age.

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Tier.

3

If you are likely to be capable of gainful employment within 3 years of leaving, or before your Normal Pension Age if earlier, ill health benefits are based on the pension you have already built up in your pension account at leaving.

Payment of these benefits will be stopped after 3 years, or earlier if you are in gainful employment or become capable of such employment, provided you have not reached your Normal Pension Age by then. If the payment is stopped it will normally become payable again from your Normal Pension Age but there are provisions to allow it to be paid earlier.

Important information

Just because you’re dismissed from your employment on health grounds, doesn’t mean you will be automatically eligible for an ill health pension. You will still need to satisfy the criteria outlined above.

Points to note

  • If you have previously received a Tier 1 ill-health pension from the LGPS, or were awarded an LGPS ill-health pension before 1 April 2008, then no enhancement can be added to your pension account if you are retired again for reasons of ill-health.
  • If you have previously received a Tier 2 ill-health pension from the LGPS, any enhancement due upon a subsequent ill-health retirement is adjusted and capped. If, in respect of the subsequent ill-health retirement you are awarded a Tier 1 or Tier 2 pension, the enhancement cannot exceed three quarters of the number of years between the initial ill health retirement and your Normal Pension Age, less the number of years of active membership since the initial ill-health retirement.
  • If you were paying into the LGPS on 31 March 2008, and were aged 45 or over on that date and have been in continuous membership of the LGPS, then if you qualify for an ill-health pension where your benefits are based on enhanced membership there is protection to ensure your ill health retirement benefits are no less than they would have been under the scheme as it applied before 1 April 2008. This protection would not apply if you have previously drawn benefits on taking flexible retirement.

Calculating your pension benefits

Working out the numbers

Working out your pension benefits depends on when you joined, how many years you’ve been a member and your final salary when you retire. It’s a little complicated due to one or two rule changes in recent years, but the information below should give you a good idea of what to expect.

Membership before 1 April 2008

For each year of membership up to 31st March 2008, you will receive an annual retirement income, which is 1/80th of your final salary. Plus a one-off tax-free lump sum which is 3 times your pension.

If you have been employed part time, we pro rata the equivalent full-time pay. But if you have been working reduced hours due to ill health, your benefits will be based on you working full time.

  • Annual retirement income = final salary x membership years / 80
  • Tax-free lump Sum = final salary x membership years/80 x 3

Membership 1 April 2008 – 31 March 2014

For each year of membership from 1 April 2008 – 31 March 2014, you will receive an annual retirement income, which is 1/60th of your final salary. 

If you have been employed part time, we pro rata the equivalent full-time pay. But if you have been working reduced hours due to ill health, your benefits will be based on you working full time.

  • Annual retirement income = final salary x membership years / 60
  • No automatic tax-free lump Sum

Membership from 1 April 2014

For each year of membership from 1 April 2014, you will receive an annual retirement income, which is 1/49th of your career average pay. 

  • Annual retirement income = career average pay x membership years / 49
  • No automatic tax-free lump Sum

Boosting your tax-free lump sum

If you want to increase or create a tax-free lump sum as part of your pension, you can use up to 25% of your pension pot. Every £1 of annual income you give up, increases your tax-free lump sum by £12.

Assumed Pensionable Pay

If you’ve had to take time off work on reduced or no pay due to ill health, don’t worry, it won’t affect your pension. To avoid any unfair deductions, the benefits are worked out based on what’s known as ‘assumed pensionable pay’. This is what your salary would have been if you hadn’t been absent from work.

Enhanced benefits

If you have been awarded early retirement on Tier one or Tier two benefits, you will receive enhanced benefits based on the number of years you have left until your Normal Pension age.

Tier One example

Jo is 53 and her Normal Pension Age is 66. There are 14 years before she reaches Normal Pension Age, so her tier one enhancement would be 1/49th of her assumed pensionable pay, multiplied by 14. This would then be added to her existing membership years.

Tier Two example

Sophie is 57 and her Normal Pension Age is 67. There are 10 years before she reaches Normal Pension Age, so her tier two enhancement would be 1/49th of her assumed pensionable pay, multiplied by 10, multiplied by ¼. This would then be added to her existing membership years, and she would get an additional 2 ½ years pension credit.

Inflation

Regardless of age, if you retire on ill health grounds, your pension will increase each year in April in line with inflation and this is based on the consumer prices index (CPI).

Already left the scheme

If you have already left employment and hold a deferred pension you can still apply for your benefits to be paid early on the grounds of ill health assuming that you meet certain criteria.

As with retiring on ill health grounds from active employment your former employer must obtain an opinion form an  independent occupational health physician that, because of your health, you would be permanently incapable of the job you were working in when you left the LGPS; if you left the LGPS after 31 March 2008 there is a further requirement that you are unlikely to be capable of undertaking any gainful employment within 3 years of applying for the benefit or by your Normal Pension Age, whichever is the earlier.

Unlike retirement from active employment there is no 3 tier system in place for ill health and there is no enhancement paid if you draw your deferred benefits early on ill health grounds. However your pension would not be reduced as it would be if chose to voluntarily draw your benefits before your normal pension age.

Next Steps

If you are thinking about retiring on ill health grounds please visit the Ill Health Section of the website which sets out the process you need to follow and rights you have to appeal if a decision does not go your way.

Information can be found here.

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