NHS Ill Health Retirement – How Does It Work?
Doctors are often concerned about being unable to carry out their duties due to ill health and the subsequent impact of ill health on their income.
However, if you are a current NHS scheme member with at least two years membership and are too ill to work in your present job you may be able to retire early and take your pension benefits.
The qualifying conditions for ill health retirement benefits
There are two tiers of ill health retirement:
Tier 1 pension
Definition: Unable to do your current NHS job due to permanent ill health.
Entitlement: Pension based on Scheme membership to date paid out without reduction.
Tier 2 pension
Definition: Unable to carry out any regular employment of like duration to your NHS employment (i.e. whole time or part time) due to permanent ill health.
1995/2008 Scheme: Pension based on Scheme membership to date plus 2/3rd of your prospective membership to Scheme's Normal Pension Age.
2015 Scheme: Pension based on Scheme membership to date plus an enhancement based on ½ of your prospective membership to Normal Pension Age.
There is no minimum pension age for ill health retirement. Eligibility depends solely on whether your ill health is ‘permanent’.
The factors taken into account when assessing whether ill health is permanent include:
- Whether you have received appropriate medical treatment in respect of the incapacity
- Your mental and physical capacity
- The type and period of rehabilitation which it would be reasonable for you to undergo in respect of your incapacity
If you are terminally ill (life expectancy of less than 12 months) you may take your benefits immediately as a lump sum.
Ill health retirement benefits payment
If your employer terminates your contract for ill health reasons this does not necessarily mean you will qualify for ill health retirement as the two are separate decisions and rely on different criteria. Increasingly, trusts seek to service notice of the termination of your contract on the basis of ill health at the same time as the application for ill health retirement is put forward. This can leave you feeling quite vulnerable as you have no guarantee of the outcome of the pension application. It is therefore important to think about your financial position before any unwelcome events happen.
Financial planning in case of ill health – including ill health that is not permanent
Cash emergency fund
An essential first step in financial planning is to establish and maintain a cash emergency fund. This should be enough to cover your essential needs in the short term if you were unable to work. For instance even when an application for ill health retirement is successful it will take approximately 8 – 12 weeks to receive your pension, although it will be backdated to your termination date or date of application. A cash emergency fund would cover your needs in the meantime.
Private income protection insurance
The NHS provides sick pay at 100% pay for 26 weeks then 50% pay for 26 weeks. For longer periods of illness you would receive no further benefits unless you qualify for ill health retirement.
It is possible to take out private income protection insurance plans that would pay an income for the full duration of your illness, or until retirement if sooner. In order to be eligible for these benefits you need to be unable to work due to your illness but the illness does not have to be permanent. Depending on the contract chosen, benefits will be paid out for as long as you are unable to do your own job, a job similar to your current job or any job. To minimise the cost of the insurance, the benefits can be deferred for 12 months so they only start after your NHS sick pay stops.
Please note this article does not constitute personalised advice. To find out more about your options please contact Richard Higgs CFP FPFS on email@example.com or 0117 966 5699.