PSI10.2.13 - Retirement before Normal Retirement Date: Incapacity Retirement - Return to Service after Incapacity Retirement - With Same Employer

(This archived guidance relates to HMRC discretionary practice before the 6th April 2006. For current guidance on Registered Pension Schemes see the Registered Pension Schemes Manual)

[PN 7.12, 7.21(d) and PN Appendix IV]

It may happen that an employee who previously retired because of incapacity and was granted benefits on that basis, recovers sufficiently to resume employment. If the employee rejoins his or her former employer and it is desired to provide further benefits then the pension benefits in payment must be suspended. If this is done then the total benefits on subsequent retirement must not exceed the greater of:

1. those permitted by PSI6.5.10 for total ‘aggregate’ service including the period when in receipt of the incapacity retirement pension. In this respect pension instalments paid during the period of incapacity retirement may be ignored, but the pension equivalent of any lump sum retirement benefit paid on early retirement must be aggregated for the purpose of calculating maximum approvable total benefits, and
2. the amount of the early retirement pension originally granted but increased in accordance with PSI13.3.21.

A separate lump sum may be given in respect of the second period of service in accordance with PSI8.1.25 but the lump sum taken on earlier retirement must be taken into account.

Where the member partially recovers from incapacity the early retirement pension may be abated. If it is desired to provide further benefits in respect of the resumed service in these circumstances we need to be consulted.

Aggregation will not be possible, however, if different bases of maximum provision apply in respect of the two periods of employment, eg, pre- and post-FA 1989 (see PSI6.5.74).

(This text has been withheld because of exemptions in the Freedom of Information Act 2000)

If payment of the incapacity pension is not suspended then further benefits cannot normally be given for the later period of service, but the employee could contribute to a personal pension scheme for this period of non-pensionable employment.