If you get ill, are unable to work and it’s likely that you won’t be able to return to work, you might be able to access your pension early.
What’s in this guide
- What is ill-health retirement?
- Ill health and defined benefit schemes
- Defined contribution pension pots
- Can I get my State Pension early due to ill health?
- Consider all your options
- How is ill-health retirement calculated?
- Find out when you can collect your State Pension
- Does your income cover your expenses?
- Get more guidance or advice
What is ill-health retirement?
Ill-health retirement is when you can access your pension early because of poor health. You’ll sometimes see this referred to as medical retirement or retirement on medical grounds.
If you have a private or workplace pension, you might be able to begin taking an income and/or lump sums from your pension at any age due to ill health. The normal minimum retirement age of 55 doesn’t apply.
Different pension schemes have different rules, so ask your pension provider or scheme administrator for details. Some allow you to access your pension early if it looks as if you won’t be able to return to your job due to physical or mental illness. Other schemes might require that you won’t be able to do any job, not just your own.
In cases of serious ill health where your life expectancy is less than one year, you might be able to take all your pension as a tax-free lump sum.
You’ll need to provide supporting medical evidence if you want to access your pension due to ill health.
If you have an income protection plan (also known as permanent health insurance), you need to seriously consider whether you choose to access your pension. This is because any income you get from your pension could reduce the payments from the income protection plan. You should also check whether accessing your pension may affect eligibility for state benefits.
Ill health and defined benefit schemes
Some defined benefit schemes (which includes final salary and career average pensions) can begin paying your pension early in the event of permanent ill health.
Usually, this type of pension is reduced if it’s paid early. But many schemes won’t make this reduction if you take your pension early due to ill health.
The maximum amount payable is what you would have got if you continued working to your normal retirement date.
Where your life expectancy is expected to be less than one year, the scheme’s rules might allow you to take the whole value of your pension as a tax-free cash lump sum.
A serious ill-health lump sum paid before you reach the age of 75 will be paid tax-free, provided you have available lifetime allowance and have not previously taken any money from your pension.
If you’re over the age of 75, the lump sum will be taxed as earnings.
Defined contribution pension pots
If you need to give up work due to ill health, you may be able to access your pension pot early, regardless of your age.
The amount you could get depends on the terms and conditions of the policy. If you’re unwell, check your options with your pension provider.
You should have the same options for taking your money as you would normally have at the age of 55.
If you decide to use some or all your pension pot to purchase an annuity to provide a guaranteed income, an impaired life or enhanced annuity could give you higher levels of income.
The annuity rate you’re offered is based on an estimate of your personal life expectancy. This is calculated using the medical information supplied.
If your life expectancy is reduced to less than one year due to illness, you might be able to take your whole pension pot as a cash lump sum. A serious ill-health lump sum paid before you reach 75 will be paid tax-free. This is provided you have available lifetime allowance. If you’re over 75, the lump sum will be taxed as income.
Can I get my State Pension early due to ill health?
It’s not possible to receive your State Pension before your State Pension age, due to ill health. But you might be entitled to some other state benefits, such as:
- Statutory Sick Pay
- Employment and Support Allowance, or
- Universal Credit.
Take a few minutes to check which benefits you can claim and how much you could get a month with our Benefits Calculator
Consider all your options
If you’re thinking of retiring because of ill health or a disability, take time to consider your options.
Work out what each one will mean for you financially, as well as for your health and wellbeing. And it’s important to get expert, independent financial advice.
Is flexible or part-time working a possibility?
If you’re disabled or have a health condition, your employer has to make ‘reasonable adjustments’ so you’re not disadvantaged at work.
If you think you could continue at work if your employer made changes to your job, your hours or your workplace, you can ask them to do so.
They have to act on your request as long as it’s reasonable.
Weigh up the benefits of carrying on working
It’s important to consider all aspects of work, not just financial ones, when making your decision.
If you’re able to work and are supported to do so, the positive effects for you might include:
- job satisfaction
- better quality of life
- improved emotional wellbeing
- continuing to be a member of any employer provided benefits such as life assurance, income protection, health insurance, or pension arrangement.
Voluntary redundancy versus early retirement
Maybe your employer has offered you redundancy as an alternative to early retirement?
Don’t be pushed into making a quick decision. Anti-discrimination laws mean you’re protected if you’re disabled or have certain health conditions.
For example, your employer must keep your job open for you and can’t put pressure on you to resign because you’ve become disabled.
If you’re happy to consider redundancy, make sure you weigh up all the pros and cons.
One advantage of taking redundancy might be the redundancy pay. Find out exactly how much you would get and whether you’d need to pay tax on it.
If you’re planning to use your redundancy pay as income, make sure you draw up an accurate budget to calculate how long it will last.
Use the statutory redundancy pay calculator on the GOV.UK website
Find out more in our guide Redundancy pay
If you work in the public sector, you might prefer to take redundancy in the hope that your condition improves and you’re able to return to work at some point. This might not be possible if you opt for early retirement.
Speak to your union representative to find out exactly what your options are, or get advice from your workplace occupational health department.
How is ill-health retirement calculated?
Your workplace or personal pension
To help you work out your income if you retired early:
- find out from your pension scheme provider what their rules are and whether you can take the pension early because of ill health.
- ask your employer or pension provider what payment options are available and what income these could provide.
Other income
- Make sure you claim everything you could be entitled to because of the extra costs associated with being disabled or having a long-term health condition – for example, Personal Independence Payment.
- Check whether there’s any support you can claim to replace your lost earnings if you have little or no pension income – for example, Employment and Support Allowance.
- Claim help with essential costs – for example, Housing Benefit.
Find out more in our guides:
What disability and sickness benefits can I claim?
Where can I get help and advice about benefits?
Find out when you can collect your State Pension
Check your State Pension age on the GOV.UK website
Does your income cover your expenses?
Draw up a budget to find out how much you need to cover your regular outgoings.
This is an essential step when deciding whether you can afford to retire early.
Get more guidance or advice
Pension Wise can help to make sense of how and when you can access your pension pot. Pension Wise is a government service that offers free, impartial guidance over the phone.
After your Pension Wise appointment, you might want to get advice from a regulated financial adviser. They are qualified professionals who can give you individual advice on the best way of turning your pension pot into your retirement income based on your circumstances.
Got questions about how your pension can be paid?
If you need help making sense of how and when you can access your pension pot, you can speak to someone from Pension Wise, a free service from MoneyHelper.
