Early Retirement Due to Illness or Disability

If you have developed a debilitating disease or disability since joining your pension scheme, and this has influenced your decision to retire and draw a pension earlier than anticipated, you may be able to wind up your pension scheme paying only minimal charges or none at all. Pension scheme providers are usually sympathetic when ill health results in premature retirement, and will tend not to penalise you unreasonably for deciding to leave employment and draw your retirement income. Individual pension schemes will differ however, any you will need to consult your scheme administrator if you are considering early retirement on the grounds of ill health. Your scheme administrator should be able to inform you of the procedure you are required to follow and notify you of any charges you may incur. If you are terminally ill it may be possible for you to take your entire pension fund as a lump sum, although this will usually be subject to tax. If you are uncertain of your best option, or concerned that your pension scheme is acting unfairly, ask an independent financial advisor to assist you.


If you are a member of a defined benefit scheme, see Occupational defined benefit schemes, you should be able to leave with the annual pension that you are entitled to, based in part on how long you have been a scheme member. Some schemes will credit you with extra years of membership if you are retiring with a serious illness, in order to increase your pension entitlement. You should have been informed about the ill-health retirement policy of your particular pension scheme when you became a member. If you need further advice regarding the benefits your scheme offers you should contact your pension scheme administrator. You will naturally be required to prove that your ill-health affects your ability to work and/or your life expectancy; generally this will involve going for a medical examination with a medical specialist whose report should support your claim. If you are too ill to do so your scheme administrators are not allowed to force you to undertake potentially detrimental procedures. You may be refused ill-health retirement if a non-life-threatening operation would improve your condition. Your individual pension scheme will be able to advise you on the required procedure.


If you are a member of a defined contribution scheme, see Occupational defined contribution schemes and Personal Pension Schemes, ill-health will usually influence the amount of money you can receive on retirement. If you choose to buy an annuity using your pension fund, see Annuities, you can apply for an impaired life annuity. If you have reason to believe that your life expectancy is impaired, an impaired life annuity will take your poor health into consideration and as a result you should be offered a higher rate annuity because you are not expected to live many years longer. In the event of your death your relatives may be able to inherit your remaining pension fund or continue to receive an annuity; the terms and conditions of your individual annuity will determine what will happen to your fund. When you choose to purchase an annuity the insurance company you approach will be able to inform you about the impaired life annuities they offer. Should you choose to use your pension fund for income withdrawal, see Income Withdrawal, your advisor at the insurance company will be able to tell you how much you are allowed to withdraw and how your ill-health affects the income withdrawal process. In the event of your death your surviving relatives may be able to inherit your remaining pension fund or use it to purchase an annuity of their own. If you are considered to have used income withdrawal in a deliberate attempt to avoid your survivors having to pay inheritance tax, your remaining pension fund will be subject to inheritance tax.


For further details on early retirement see Drawing a pension early and Early retirement due to occupation.