Early retirement through ill health

Our Place has turned to The Pension Advisory Service to provide you with guidance on retiring due to ill health.

This section looks at how it affects your pension. Our Place’s other sections like health, money, travel and community can help in other aspects with enforced early retirement.

But back to pensions in ill health retirement – any scheme can adopt a rule which allows a member to take an early retirement pension in the event of incapacity.

The definition of incapacity will differ from scheme to scheme but generally it will require an inability to carry out one’s own job due to physical or mental illness.

Some schemes will require the individual to be incapable not only of performing their own normal employment but to be incapable of carrying out any occupation at all. Clearly, the latter is a more difficult criteria to meet than the former.

Another criteria which is required is that the medical condition is permanent i.e. the condition is likely to last until the person dies or reaches the normal retirement age of the scheme.

Most schemes will have this criteria written into its rules but, where this has not happened case law, would now suggest that such a criteria can be presumed.

Many schemes will allow early payment of pension in the event of permanent ill health but will reduce the pension for early payment.

Others will make no such reduction while others will increase the pension in acknowledgement of the fact that the scheme member will not work again.

The maximum pension that any scheme can give is the maximum that would have applied had the member continued in work to the scheme’s normal retirement age but based on final salary at the date of early retirement.

The decision to grant an ill-health pension may lie with the company only, the trustees only or both the company and the trustees.

Case law has dictated that such a decision, whichever body makes it, has to be in accordance with the scheme rules and supported by medical evidence.

It is for the decision maker to determine what evidence is required and who should provide it.

In recent years this has become an increasing area of dispute for scheme members as companies and trustees tighten up their procedures for granting such pensions due to the cost involved.

Case law (Edge v. the Pensions Ombudsman & Anor) has laid down that a decision to refuse payment of an early pension can only be challenged if one of the following principles have been infringed:

• The decision making body must ask the correct questions.
• They must direct themselves correctly in law; in particular they must adopt a correct construction of the scheme rules.
• They must take into account all relevant but no irrelevant factors.
• They must not arrive at a perverse decision i.e. a decision to which no reasonable body could arrive
  In recent years this has become an increasing area of dispute for scheme members as companies and trustees tighten up their procedures for granting such provisions due to the cost involved.