Ill health and your pension

You can normally only start getting your pension if you're at least 55, but you may be able to get your pension earlier if you have to give up your job due to illness. If you're seriously ill you may be able to take all your pension pot as a one off lump sum payment.

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Qualifying for an ill health or incapacity pension

To be able to take your pension early for ill health reasons you must satisfy the following HM Revenue & Customs (HMRC) conditions as well as those set by your pension scheme.

You must:

  • have left your job
  • be incapable of carrying out that type of job due to physical or mental illness
  • continue to be incapable of carrying out that job due to your ill health until your normal expected pension age - your scheme administrator must get evidence from a doctor confirming this

If you don't meet these conditions any payment made before you're 55 - or your earlier protected pension age if you have one - will be an unauthorised payment. You'll be liable for an Income Tax charge of at least 40% on the unauthorised payment.

Your pension scheme rules will state who decides if you qualify for an ill health pension and what evidence is required. Contact your scheme administrator if you think you may be able to take your pension early due to ill health.

If you're 55 or older you don't have to meet the ill health conditions set by HMRC. But if you're suffering from ill health you may want to ask your scheme administrator if you qualify for an ill health (incapacity) pension. You may get a bigger pension if you retire on ill health grounds.

If you're the scheme administrator you'll need to complete an Event Report if you're paying an ill health pension to certain members such as the director of a scheme employer.

Unauthorised payments from pension pots

Protected pension age

Completing a Pension Scheme Return, Accounting for Tax Return or Event Report

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How much ill health pension you'll get

The amount of pension you'll get depends on your pension scheme rules. Your scheme administrator should be able to tell you how much it will be.

You'll usually have the same options to take a tax free lump sum and type of pension in the same way as if you were retiring normally.

Taking your pension - the basics

Options when you take your pension

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If you recover from ill health

It depends on your pension scheme rules if your health improves as to whether they:

  • continue paying your pension at the same level
  • reduce your pension
  • stop paying your pension

If you're the scheme administrator you'll need to complete an Event Report if you stop paying an ill health pension.

Completing a Pension Scheme Return, Accounting for Tax Return or Event Report

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Your ill-health pension when you die

Your scheme may pay your spouse or civil partner a dependant's pension after your death but this depends on the scheme rules.

What happens to your pension savings when you die

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Serious ill health - taking your pension as a lump sum

If you're seriously ill you may be able to take all your pension pot as a lump sum if all the following conditions apply:

  • you're not expected to live for longer than a year and your scheme administrator has evidence from a doctor confirming this
  • you've not yet started to get your pension
  • you've not used up all your lifetime allowance

This lump sum is known as a serious ill health lump sum.

The amount of lump sum you'll get depends on your pension scheme rules.

If you're the scheme administrator you'll need to complete an Event Report if you're paying a serious ill health lump sum to certain members such as the director of a scheme employer.

Contact your scheme administrator if you think you may be able to take all your pension pot as a serious ill health lump sum.

Completing a Pension Scheme Return, Accounting for Tax Return or Event Report

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Tax and pension payments

The maximum amount you can save into a pension scheme during your life that qualifies for tax relief is £1.25 million from 6 April 2014. If your pension savings are worth more than this lifetime allowance you'll pay a charge on the excess. If you have:

  • a valid form of protection from the lifetime allowance charge at the time you take your benefits you'll have a personalised lifetime allowance higher than £1.25 million
  • valid enhanced protection you'll have no liability to a lifetime allowance charge

After you've taken your pension your scheme administrator will give you a statement telling you how much of the lifetime allowance your pension and lump sum has used up.

Tax on an ill health pension

Your lump sum and pension will be paid to you by the pension or annuity provider with tax already taken off using the PAYE (Pay As You Earn) system in the same way as if you were retiring normally.

Tax on a serious ill health payment

If you're under 75 your serious ill health lump sum will be tax free as long as you haven't used up your lifetime allowance. If you have used all or part of your lifetime allowance you'll pay a 55% tax charge on the amount of the lump sum in excess of the lifetime allowance.

If you're over 75 you'll pay 55% tax on the whole lump sum.

Tax on workplace, personal or foreign pensions

More about the lifetime allowance for pension schemes

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