Pensions

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Ill health retirement for transitional members FAQs

Transitional members

This section is relevant to you if you have joined the 2015 NHS Pension Scheme and you also have membership in the 1995 and 2008 sections of the Scheme. It covers the following guidance:

GP flexibilities for transitional members
Ill health retirement for transitional members
Mental Health Officers joining the 2015 scheme
Redundancy for transitional members

 

 

Answers to common queries concerning ill health retirement for members of the 2015 NHS Pension Scheme who also have membership in the 1995 or 2008 sections of the Scheme.

 

How will my pension be calculated if I have to retire on health grounds from the 2015 scheme having previously built up 1995/2008 section benefits?

If you are unable, through illness, to work in your present job and your condition is permanent (assessed as meaning up until your State Pension Age), you may be able to retire early and take your pension benefits without actuarial reduction. This is known as a Tier 1/lower tier award.

If, in addition to the above, you are unable to do any regular employment of a similar duration to your current duties you may be able to retire early and take your pension benefits without actuarial reduction and with an enhancement. This is known as a Tier 2/upper tier award.

Your accrued 1995/2008 section benefits will be payable based on final salary linking/current dynamising factors (unless you have had a break in pensionable service of five years or more) and in addition you will receive the accrued value of your 2015 scheme benefits (Tier 1/lower tier) or you will additionally receive the accrued value of your 2015 scheme benefits plus an enhancement based on 50% of your prospective service to your State Pension Age (Tier 2/upper tier).

 

Will my previous 1995/2008 section benefits be enhanced if I qualify for Tier 2/upper tier ill health retirement?

No. Your previous benefits will be payable based on the service (for officers) or pay (for practitioners) built up prior to moving to the 2015 scheme. If you have not had a break in service of 5 years or more any officer benefits will continue to be linked to your salary up to retirement and any practitioner benefits will be dynamised up to retirement.

If you have had a break in service of 5 years or more any officer benefits will be based on the pay you received leading up to the break and any practitioner benefits will be dynamised up to the break. Such benefits affected by a break in service of 5 years or more will be increased in line with inflation between the day of starting the break in pensionable service and retirement.

Any tier 2/upper tier enhancement applies only in relation to the benefits accrued in the 2015 scheme.

 

I am a GP. Will my protected benefits have the GP flexibilities applied?

Whilst GP flexibilities do not apply in the 2015 scheme your 1995/2008 section benefits will take account of the fact that your officer benefits could have been flexibly treated. Please refer to our FAQ on 'GP flexibilities for transition members' for more information.

 

I will have had less than two year's membership in the 2015 scheme. Will I still qualify for ill-health retirement?

Yes. So long as you have at least two calendar years membership in total between both your previous scheme and the 2015 scheme you can apply to retire on health grounds. The following conditions also need to be met:

  • You retire from pensionable employment due to illness or injury, and
  • You are permanently (up to your State Pension Age) incapable of efficiently carrying out the duties of your employment because of illness or injury - Tier 1/lower tier pension, and/or
  • You are additionally permanently (up to your State Pension Age) incapable of engaging in regular employment of like duration to your current duties because of the illness or injury - Tier 2/upper tier pension
  • You are under your State Pension Age.

 

What is a Tier 1/lower Tier ill health pension?

If you are assessed as being permanently (up to your State Pension Age) incapable of carrying out the duties of your own job you will be entitled to the early payment of the retirement benefits you have earned to date, paid without any actuarial reduction. Both the 2015 benefits and 1995/2008 benefits will be paid unreduced and unenhanced.

 

What is a Tier 2/upper Tier ill heath pension?

If you are assessed as being permanently (up to your State Pension Age) incapable of carrying out the duties of your own job and additionally of engaging in regular employment of like duration to your current role you will be entitled to the retirement benefits you have earned to date in the 2015 scheme, enhanced by 50% of your prospective membership up to your State Pension Age. Additionally, your 1995/2008 benefits will be paid unreduced and unenhanced.

 

If the Government announces an intention to increase the State Pension Age how will any Tier 2/upper tier enhancement be calculated?

If the Government proposes to increase the State Pension Age in the future then your 2015 benefits will be enhanced based on announced policy intentions.

 

How will any Tier 2/upper Tier ill health enhancement apply to my benefits?

Your accrued 2015 service will receive a membership enhancement of 50% of your prospective membership to your State Pension Age. For example:

If your State Pension Age is 67 and you are now aged 47, and you are granted Tier 2/upper tier ill health retirement you will receive a 10 years enhancement to your 2015 benefit accrual.

To allow for any part-time working you may have had the enhancement will apply as follows:

Accrued 2015 pension x (calendar length service in the 2015 scheme + enhancement of 50% of your prospective service to State Pension Age)

 

I am paying towards an added year's contract. How will this be affected if I retire on health grounds?

On ill health retirement you are credited with your full intended purchase. Your added year's contract will be adjusted to reflect periods of part-time working.

The exception to this will be where you have applied for ill health benefits after reaching age 60 and have an ongoing added years contract to age 65. In this case you will be credited with the amount of added years purchased by the time of retirement which will then be actuarially reduced to reflect its early payment. The same is also true if you had an added years contract to age 65 which you chose to stop paying into before age 60. The benefits would be calculated and then actuarially reduced to reflect the contracts early payment.

If you are an active 2015 scheme member who has voluntarily terminated an added years contract (to age 60) in advance of your application for ill heath retirement, you will be credited with the amount of added years purchased at termination of the contract. This will not be actuarially reduced. The position will be the same if you have had a break of 12 months or more resulting in your contract terminating.

If you are a deferred 2015 scheme member, you will only receive the added years you have actually purchased with neither increase nor reduction.

 

I am paying towards an additional pension purchase contract which began whilst I was a member of the 1995/2008 section. How will this be affected if I retire on health grounds?

On ill health retirement you will be credited with your full intended purchase providing you have been contributing to the contract for more than 12 months and have not had a break in pensionable service of 12 months or more between last being a member of the 1995/2008 section and first joining the 2015 scheme.

If you have had a break of 12 months or more between leaving the 1995/2008 section and joining the 2015 scheme the additional pension contract cannot continue on joining the 2015 scheme. The benefits of that contract will be paid based on the amount of the purchase that had completed prior to the break.

If the contract has been in place for less than 12 months, you will receive a refund of the contributions paid.

 

As I had a break in pensionable service of 12 months or more since joining the 2015 scheme I have a deferred additional pension purchase. How will this be affected if I retire on health grounds?

You will receive the benefit of the amount of purchase which you had made prior to the break in service of 5 years or more.

 

I have an Additional Voluntary Contribution (AVC) or Free Standing Additional Voluntary Contribution (FSAVC) contract. How will these be affected if I retire on health grounds?

You should approach your AVC/FSAVC provider for advice if you wish to claim the benefits early.

If you have no ongoing employment you are not able to contribute to these types of policies. You can defer taking the benefits until a later date.

 

I have opted out of 2015 scheme membership but remain in NHS employment. What pension will I receive if I have to retire on health grounds?

You will be required to meet Tier 1/lower tier criteria in order to receive the payment of your accrued 2015 scheme benefits as well as your accrued 1995/2008 section benefits.

 

I have left NHS employment and have deferred benefits in the 2015 scheme and the 1995/2008 schemes. What pension will I receive if I have to retire on health ground?

You will be required to meet Tier 2/upper tier criteria in order to receive the payment of your accrued 2015 scheme benefits as well as your accrued 1995/2008 section benefits.

 

Can I apply for ill health retirement if I am over my State Pension Age?

Ill health retirement is only available to members who have not yet reached the State Pension Age. The only exception to this is if you are over the State Pension Age and have a life expectancy of less than 12 months.

Unless you are terminally ill, on reaching your State Pension Age there is no additional benefit to applying for ill health retirement.

 

If I am terminally ill how do I apply for ill health retirement?

If you are under the State Pension Age, you need to apply for ill health retirement by providing medical evidence to demonstrate that your life expectancy is less than 12 months.

If you are over the State Pension Age, you need to apply for retirement benefits and in addition you will need medical evidence to demonstrate that your life expectancy is less than 12 months.

  • If you are contributing to the NHS Pension Scheme (England and Wales) you need to complete form AW341(a)
  • If you are contributing to the NHS Superannuation Scheme (Scotland) you need to complete forms AW8 and AW8 Med
  • If you are a contributing to the Health and Social Care pension scheme (Northern Ireland) you need to complete form AW240.

 

If I am terminally ill what benefits are payable?

If you are under the State Pension Age you will be awarded Tier 2/upper tier benefits in relation to your 2015 pension and your accrued unenhanced 1995/2008 benefits. You will be able to convert these benefits to a lump sum payment.

If you are over the State Pension Age you are able to convert your retirement benefits to a lump sum payment.

The lump sum is calculated from your standard NHS benefits. Firstly you commute pension to provide the maximum lump sum available under HMRC rules. Each £1 of pension converted will provide £12 of lump sum. Once you have reached the HRMC maximum lump sum each further £1 converted will provide £5 of lump sum.

 

Will retiring on ill health grounds prevent me from working again?

No. However, you are unable to return to exactly the same role from which you have retired. You can return to the same role in a reduced capacity (working fewer hours) or an alternative post if you retired on Tier 1/lower tier grounds. However, returning to work will have implications for your benefits, particularly if you are in receipt of tier 2/upper tier benefits, and you will need to consider the restrictions below.

 

Will I be able to rejoin the 2015 scheme if I return to NHS employment following tier 1/lower tier ill health retirement?

If your previous benefits were accrued in the 1995 section you will not be able to rejoin the 2015 scheme. The exception to this is if you retired on tier 1/lower tier health grounds and return to NHS employment before age 50.

If your previous benefits were accrued in the 2008 section you will be able to rejoin the 2015 scheme provided you are under age 75 and have not accrued 45 calendar years' service.

 

Will I be able to rejoin the 2015 scheme if I return to NHS employment following tier 2/upper tier ill health retirement?

Rejoining the 2015 scheme is not possible following tier 2/upper tier ill health retirement. The exception to this is that should your tier 2/upper tier ill health pension be replaced by a tier 1/lower tier ill health pension you may be able to rejoin the 2015 scheme. This will only be the case if your previous benefits were held in the 2008 section. See the question above.

 

What are the implications for my tier 1 /lower tier ill health pension if I return to NHS employment?

If you retire under tier 1/lower tier and return to NHS employment before you reach your State Pension Age, there will be a limit on how much you can earn without your pension being affected. This is known as the 'earnings margin'. If your post retirement NHS earnings exceed the earnings margin, your NHS pension will be abated. This restriction ceases once you reach your State Pension Age.

Whilst you remain under your previous section's normal pension age (60 for the 1995 section and 65 for the 2008 section) all of your benefits are technically payable from the 2015 scheme (including your accrued 1995/2008 section benefits) and you will only be subject to the abatement rules of the 2015 scheme. These are similar to those of the 2008 section.

When you reach the normal pension age relating to your previous section (60 for the 1995 section and 65 for the 2008 section) your benefits become payable separately from the 2015 scheme and from your protected section. You should not notice any difference in the amount payable or the method in which your pension is paid to you. At this time your 1995/2008 section benefits cease to be subject to abatement and only your 2015 benefits will be subject to the abatement rules until you reach State Pension Age.

 

I have exceeded my earnings margin and my pension has been abated. I have now stopped working or reduced my earnings to within the earnings margin. Will my pension be restored to its previous level?

Yes. Your pension will be restored from the date that your post retirement NHS earnings fall below the earnings margin.

 

When will my pension stop being subject to abatement?

Your pension ceases to be subject to abatement when you reach your State Pension Age.

 

Are there any restrictions if I am awarded tier 1/lower tier retirement and I return to non-NHS employment?

Your pension will not be affected if you return to work with a non-NHS employer.

 

What are the restrictions if I am awarded tier 2/upper tier and I return to NHS employment?

There are two restrictions which you need to consider:

  1. You cannot work for more than 12 months in the NHS and keep your tier 2 ill health pension. For example, if you return to work on 6 October 2016, your tier 2 (upper tier) pension will be replaced with the tier 1 (lower tier) pension if you do any NHS work after 5 October 2017 regardless of the actual amount of work undertaken in the 12 month period.
    For this purpose 'work' will include any unpaid honorary posts or unpaid work which may confer employment status but does not include NHS work via a locum Agency or if you channel your NHS earnings via a limited company.
  2. Your gross earnings in any tax year cannot exceed the lower earnings limit (LEL) for primary class 1 National Insurance contributions for that tax year.
    The LEL is set by HMRC and the value for any given tax year can be found in the following location on the HMRC website.

Additionally your pension may be subject to abatement if you return to NHS employment before your State Pension Age.

 

What is the return to work restriction if I am awarded tier 2/upper tier and I return to non-NHS employment?

If you return to non-NHS employment after retiring with a tier 2/upper tier ill health pension, your gross earnings in any tax year cannot exceed the lower earnings limit (LEL) for primary class 1 National Insurance contributions for that tax year. This can include earnings from overseas employment.

 

How will my tier 2/upper tier ill health pension be affected if these restrictions are exceeded?

If you exceed these restrictions, your tier 2/upper tier ill health pension will be replaced with the tier 1/lower tier pension with effect from the first pension payment date after the earlier of:

  • The first day spent working in the NHS after the 12 month period ended
  • The first pension payment date after the date your earnings exceeded the annual LEL

 

How will the Pensions Agencies determine whether I have exceeded the LEL if I have a tier 2/upper tier ill health pension?

At the end of each tax year, the Pensions Agencies will review the earnings and employments of all pensioners in receipt of tier 2/upper tier ill health pensions. You are however advised not to wait for the review and to notify the Pensions Agencies as soon as possible if you return to work to avoid your pension being overpaid.

 

Can I apply to restore my tier 2/upper tier ill health pension after it has been replaced with tier 1/lower tier?

Your ability to reapply for tier 2/upper tier is dependent upon which of the restrictions you have exceeded:

If you have worked in the NHS for more than 12 months, you will not be able to reinstate your pension to tier 2/upper tier under any circumstances.

If your gross earnings exceed the LEL, you can apply for the reinstatement of your tier 2/upper tier pension if you fulfil all of the following criteria:

  • You must be under the State Pension Age
  • You must stop working altogether
  • You must provide new medical evidence to show that your medical condition still satisfies the criteria necessary for a tier 2/upper tier ill health pension. The new medical evidence must be submitted before the end of the 12 months starting from the date you exceeded the LEL. If you exceed the LEL while working in the NHS the new medical evidence must be submitted within 12 months of your re-employment.

All the conditions must be satisfied.

The decision to restore your pension to tier 2/upper tier rests with the Pensions Agencies and if they agree to do so your pension will be restored from the day after you terminate your re-employment.

If you successfully apply to restore your tier 2/upper tier benefits and again return to work and exceed the restrictions you will not be able to apply to restore your tier 2/upper tier benefit a second time.

 

I was awarded tier 2/upper tier ill health retirement but have since returned to work and my tier 2 pension was replaced by a tier 1/lower tier pension. How will my potential dependents' pension be calculated?

If you were to die in receipt of a substitute tier 1/lower tier pension but within the 12 month protected period (which starts from the date that your pay from non-NHS employment first exceeded the Lower Earnings Limit) then your dependents' benefits will be based on your original tier 2/upper tier pension.

If, however, you were to die whilst in receipt of a tier 1/lower tier pension outside of 12 months after first having exceeded the Lower Earnings Limit then the dependents' benefits will be based on your tier 1/lower tier pension.

If you were to die within 12 months of returning to NHS employment then your dependents' benefits will be based on your tier 2/upper tier pension. If, however, you were to die whilst in receipt of a tier 1/lower tier pension outside of 12 months after returning to NHS employment then the dependents' benefits will be based on your tier 1/lower tier pension.

 

I am planning to leave the UK permanently following my tier 2/upper tier retirement. Will the return to work restrictions still apply?

Yes. The LEL earnings restrictions will continue apply even if you work abroad.

 

Do the tier 2/upper tier return to work restrictions cease to apply when I reach the State Pension Age?

No. The restrictions continue to apply regardless of age.

If you are in receipt of a substitute tier 1/lower tier award as a result of returning to NHS employment for more than 12 months then this reduction is permanent.

If you are in receipt of a substitute tier 1/lower tier award as a result of breaching the LEL and you are not in the position to apply to restore your tier 2/upper tier pension before your State Pension Age then this reduction is permanent.

 

I am a deferred member and my application to retire on health grounds has been accepted. What are the restrictions if I return to work?

These will be the same as for members retiring with a tier 1/lower tier ill health pension.

 

Will my ill health pension be subject to the Annual Allowance limit in the year I retire?

Yes. If you retire on ill health grounds you are not automatically excluded from the Annual Allowance. You are more likely to exceed the threshold if you are awarded tier 2/upper tier ill health retirement benefits due to the enhanced pension payable or if you are purchasing added years or additional pension.

HMRC have stated that their 'Severe Ill Health' Test must be met in order for an individual to be exempt from the Annual Allowance charge in the year that they retire on ill health grounds. Although the NHS Pension Scheme tier 2 requirements do not automatically mean that you satisfy this rule, if you are suffering from ill health rendering you unlikely to be able to undertake gainful work (in any capacity) at any time up to your State Pension Age (otherwise than to an insignificant extent) the scheme medical advisers can confirm this to enable you to be exempt from any Annual Allowance charge. If you believe your ill health is such that you meet this criteria we would suggest that you submit evidence, at the time of making your ill health retirement application, to illustrate that this criteria is met. Subsequent appeals will only eliminate an annual allowance charge if they are successful in the same tax year in which the charge arose.

If you are terminally ill you will satisfy the 'Severe Ill Health' test and the scheme medical advisers will confirm this to enable you to be exempt from any Annual Allowance charge.

Further information on the severe ill health test.

 

Will my ill health pension be indexed linked?

Yes. Your ill health pension is fully index-linked from the date of payment, for as long as it is in payment.

Further information on the Increases to pensions FAQ.