Ill health retirement and your pension

Guidance on ill health retirement including definitions, possible outcomes and effects on your pension.

Location: UK
Audience: GPs SAS doctors Junior doctors
Last reviewed: 10 February 2022
Piggybank illustration
Please note

Any members who are having to consider ill health retirement should ensure that their application is received by the relevant Pensions Agency by 31 March 2022 in order for it to be in scope for the McCloud age discrimination remedy. Read more

If you are unable, through illness, to work in your present job and your condition is permanent, 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 enhancement.

Actuarial reduction is the tables used to calculate the reduction to your benefits if you retire early. This is known as a tier 2 (upper tier) award.

 

Qualifying conditions for ill health retirement

There are two tiers of ill health retirement benefits. The benefits you get will depend on the severity of your condition and the likelihood of you being able to work again.

How do I qualify for ill health retirement?

To qualify for ill health retirement you must:

  • have at least two years calendar membership, and
  • retire from pensionable employment due to illness or injury
  • be permanently incapable of efficiently carrying out the duties of your employment because of illness or injury – (tier 1 (lower tier) pension)
  • be permanently incapable of engaging in regular employment of like duration to your current duties because of the illness or injury – (tier 2 (upper tier) pension)
  • be under the pension scheme normal pension age (age 60 in the 1995 section, age 65 in the 2008 section and 2015 scheme).
What if I am over the pension age?

Ill health retirement is only available to members who have not yet reached the normal pension age. The only exception is when a member has life expectancy of less than 12 months.

Unless you are terminally ill, on reaching your normal pension age there is no additional benefit from applying for ill health retirement.

How to apply to retire on ill health grounds

Follow the steps below. Then, the pension schemes’ medical examiners will decide whether you qualify for ill health retirement, what level of benefits are payable and whether you meet the HMRC severe ill health condition test to avoid any potential annual allowance tax charge. 

It is possible that the medical advisers will request additional medical evidence and on rare occasions they may wish to meet with the applicant.

Most cases are decided on the basis of the medical evidence submitted with the original application.

If you are an active member of the scheme
  • If you are contributing to the NHS pension scheme (England and Wales) you need to complete form AW33E.
  • 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 AW33.
If you are a deferred member of the scheme
  • If you are contributing to the NHS pension scheme (England and Wales) you need to complete form AW240P. 
  • If you are contributing to the NHS superannuation scheme (Scotland) you need to complete form AW8 (P) and AW8 MED (Preserves) 
  • if you are a contributing to the health and social care pension scheme (Northern Ireland) you need to complete form AW240.  
If you are terminally ill

If you are under the pension age:

  • You will be awarded tier 2 (upper tier) benefits which you are able to convert to a lump sum payment.
  • You need to apply for ill health retirement as detailed above, providing 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 also need to complete form AW341.

If you are over the pension age:

  • You are able to convert your retirement benefits to a lump sum payment
  • You need to apply for age retirement benefits and in addition you will need confirmation from your doctor that your life expectancy is less than 12 months.
  • You will need to complete the forms listed above dependent on your pension scheme.
If you are a junior doctor

There are some specific issues relating to juniors in relation to your application for ill health retirement.

As you are on rotations with a fixed end term it is important that your employer informs NHS Pensions that the contract is terminated on capability grounds and not due to the end of the fixed term contract.

Failure to do this can lead to an ill health retirement being declined and can place you in the difficult position of not being well enough to take up your next rotation and not being eligible for ill health retirement. Please contact the BMA pensions department for assistance.

Criteria glossary

Tier 1 pensions

If you are assessed as being permanently 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.

Tier 2 pension

If you are assessed as being permanently incapable of carrying out the duties of your own job and additionally of engaging in regular employment of like duration, you will be entitled to the retirement benefits you have earned to date, enhanced by two thirds of your prospective membership up to the scheme’s normal pension age.

What does ‘retire from pensionable employment’ mean?

This means that your employment must be terminated on the grounds of ill-health only. Should your employer cite a different reason for the cessation of employment, for example dismissal, you would not be able to receive ill health retirement benefits.

The sole reason for your retirement must be permanent ill health.

What does ‘permanently incapable’ mean?

You need to demonstrate that there are no further treatments or medication which can be explored to enable you to return to your role before your normal pension age.

To establish permanence, the agencies use the civil burden of proof, ie the balance of probabilities.

What does ‘regular employment’ mean under tier 2 criteria?

This means that in addition to being permanently incapable of undertaking your own NHS job, you would be permanently incapable of similar alternative employment. This is irrespective of whether or not such employment is available to you, taking account of your:

  • mental capacity
  • physical capacity
  • previous training
  • previous practical, professional and vocational experience. 
What does ‘like duration’ mean for tier 2?

This means that the assessment for regular employment under tier 2 will take into account whether you are working whole-time or part-time in your NHS job.

Applying for ill health retirement

It is best to apply for ill health retirement while you are in pensionable employment. Your application to retire on health grounds will be considered differently if it is made after your last day of pensionable employment.

If the application is made before your last day of pensionable employment, it will be assessed against the criteria of both tier 1 and tier 2 and the appropriate benefits will be paid.

If the application is made after your last day of pensionable employment, it will be assessed against the tier 2 criteria but if successful will result in the payment of tier 1 benefits.

Can I apply retrospectively?

Yes – if your NHS employment was terminated on health grounds and you did not apply prior to leaving.

It may be possible to make an application retrospectively if it is confirmed that the only reason for leaving employment was ill health. For further assistance on retrospective applications please contact the BMA pensions department

 

Do I need my employer’s consent to apply?

Whilst it is not necessary for your employer to consent, they will need to confirm that ill health is the only reason for your retirement.

Greater emphasis is now given to rehabilitation and to making reasonable adjustments to enable you to return to work. If your employer is able to facilitate your return to your current duties this may make an application less likely to succeed.

If, however your employer is able to facilitate a return to work in a different role or working fewer hours in your existing role this might mean you are able to apply to for ill health retirement from your original position.

Do I need to be on sick leave to apply?

You are not required to be on sick leave to apply for ill health retirement.

However, any ill health retirement pension is likely to be lower than your NHS earnings, even if you are receiving half sick pay.

Once your application for ill health retirement has been approved it may be beneficial to use as much of your contractual sick pay as possible before retiring on health grounds. This will need to be agreed with your employer.

Outcomes of your application and appeal

Your pension benefits should become payable from the date your attending doctor signed the application form, assuming your application is approved. Any delays in returning the application form to the relevant NHS pensions agency could affect this.

My application was not successful – what can I do?

If your application is not successful or you do not agree with the outcome you can appeal against the decision under the pensions agencies internal dispute resolution procedure. The BMA pensions department can assist you in submitting an appeal.

It is important to note that fresh medical evidence is required to be submitted with an appeal.

I applied while employed, left employment and my application was then unsuccessful

If you appeal and are successful, the payment of your pension benefits will be backdated to your last day of pensionable employment.

My application was unsuccessful – can I claim voluntary early retirement pension while I appeal?

No. Once retirement benefits have been paid it is not possible to change the basis on which they were claimed.

I was put on tier 1 – can I claim tier 1 pension and appeal?

Yes. You have retired on the grounds of ill health and are seeking to appeal the tier awarded rather than to change the reason for your retirement.

If an appeal is successful your revised award will be backdated to the date of your retirement.

I was put on tier 1 with a three year review – could it be backdated if successful?

If you have been determined to receive a tier 1 pension but will be reviewed in three years against tier 2 criteria, if, on review, you are awarded tier 2 benefits these are payable prospectively from the date this is granted and not retrospectively.

Payment of your pension

The possible outcomes of your application are that the pensions agency may:

  • award benefits under tier 1
  • award benefits under tier 1 with the opportunity to ask for a review to award tier 2 within three years of the decision and before the normal pension age
  • award benefits under tier 2
  • defer the decision pending the submission of additional medical evidence (usually given where there are outstanding treatment options)
  • reject the application.
How do I claim my pension?

To claim your pension benefits, you must:

  • retire from your NHS employment for 24 hours
  • complete the relevant retirement application forms.

You can get the required application forms from your employer.

The pensions agencies may take several weeks to process the retirement application forms. You may therefore wish to consider this when arranging to leave to avoid having a period without income.

Is there a time limit to claim my pension once my application is accepted?

Yes. If you are contributing to the NHS pension scheme in England and Wales or Northern Ireland, it is necessary to submit your application for payment of pension within 12 months of the decision date.

If you are contributing to the NHS superannuation scheme in Scotland, you must give an expected retirement date when submitting an application. You do not need to retire before being advised whether your application has been successful.

I am paying towards an added year's contract

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 pension after reaching normal pension age (terminal ill health). You will be credited with the amount of added years purchased at retirement which will then be actuarially reduced to reflect its early payment.

If you are an active member having voluntarily terminated your added year’s contract 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 then be actuarially reduced to reflect its early payment.

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

I am paying towards an unreduced lump sum contract

On ill health retirement you will be credited with your full intended purchase providing the contract has been in place for at least 12 months.

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

I am paying towards an additional pension purchase contract

On ill health retirement you will be credited with your full intended purchase providing the contract has been in place for at least 12 months.

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

I have an additional voluntary contribution contract

You should approach your 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 more than one post

If you have more than one NHS pensionable employment, you must retire from all posts to access your pension.

Will my 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 a tier 2 pension due to the enhanced pension or if you are purchasing added years or added 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 unlikely to be able to undertake work (in any capacity) up to your state pension age, the scheme medical advisers can confirm this to enable you to be exempt from any charge.

If you are terminally ill you will satisfy the severe ill health test and the scheme medical advisers will confirm this to exempt you from any charge.

Returning to work

Retiring on ill health grounds will not prevent you from working again. 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. However, returning to work will have implications for your benefits and you will need to consider the restrictions listed below.

How will returning to work affect my tier 1 pension?

If you retire under tier 1 and return to NHS employment before you reach the normal 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. All restrictions cease from normal pension age.

If you reached the earnings margin then reduce your hours or earnings, your pension will be restored from the date that your post retirement NHS earnings fall below the earnings margin.

Your pension ceases to be subject to abatement when you reach the normal pension age of the scheme.

For more information please see our guidance on abatement.

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

These same restrictions also apply to deferred members.

How will returning to work affect my tier 2 pension?

If you are awarded tier 2, you may be at risk of losing your tier 2 pension if:

  • you work in the NHS for more than 12 months
  • your earnings exceed the lower earnings limit for national insurance contributions regardless of who you are employed by.

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. Your tier 2 pension will be replaced by tier 1 after 12 months.

    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 (from any employment) in any tax year cannot exceed the lower earnings limit for primary class 1 national insurance contributions for that tax year.

    At the end of each tax year, the pensions agencies will review the earnings and employments of all pensioners in receipt of tier 2 pensions. You are 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.

Additionally, your pension may be subject to abatement if you return to NHS employment before your normal retirement age.

If you exceed these restrictions, your tier 2 ill health pension will be replaced with the tier 1 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 lower earnings limit.

These restrictions still apply if you are planning to leave the UK permanently.

The restrictions continue to apply regardless of age.

Can I work to replace my tier 2 pension if it has been replaced with tier 1?

Your ability to reapply for tier 2 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 under any circumstances.

If your earnings exceed the lower earnings limit, you can reapply for the tier 2 pension if you fulfil all of the following criteria.

  • You must be under the normal pension age.
  • You must stop working altogether.
  • You must provide new medical evidence to show that your medical condition still satisfies the criteria for a tier 2 pension. The new medical evidence must be submitted before the end of the 12 months starting from the date you exceeded the lower earnings limit. If you exceed the limit while working in the NHS the new medical evidence must be submitted within 12 months of your re-employment.

The decision to restore your tier 2 pension rests with the pensions agencies. If they agree to do so, your pension will be restored from the day after you terminate your re-employment.

If you return to tier 2 and again return to work and exceed the restrictions you will not be able to apply to restore your tier 2 pension a second time.

What would happen to my dependents’ potential pension?

If you were to die in receipt of a substitute tier 1 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 pension.

If, however, you were to die whilst in receipt of a tier 1 pension outside of 12 months after first having exceeded the limit then the dependants’ benefits will be based on your tier 1 pension.

Rejoining the pension scheme

Whether you are able to rejoin the NHS pension scheme will depend on:

  • which section of the scheme you were a member of on the date you retired
  • the type of ill health pension you are receiving
  • your age at the date of returning to employment.

In all cases, members must be less than 75 years of age with less than 45 years calendar length service in the scheme and have not claimed terminal ill health lump sum.

I was in the 1995 section

Whether you can rejoin depends on the type of ill health pension you are receiving and your age at the date of returning to employment.

If you retired with a tier 1 pension

  • Under age 50: you can rejoin the 1995 section of the scheme straight away.
  • Age 50 and over: you cannot rejoin the scheme.

If you retired with a tier 2 pension

  • Under age 50: you can rejoin the 1995 section of the scheme after one year of returning to employment provided you are still under 50 on that date.
  • Age 50 and over: you cannot rejoin the scheme.
I was in the 2008 section

Whether you can rejoin depends on the type of ill health pension you are receiving.

If you retired with a tier 1 pension you can rejoin the 2008 section straight away

If you retired with a tier 2 pension you can rejoin after one year beginning with the first day you return to employment.

Glossary

Tier 1 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.

Tier 2 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.

Actuarial reduction

The term ‘actuarial reduction’ refers to the actuarial tables used to calculate the reduction to your benefits if you retire early.

If you are contributing to the 1995 section the actuarial reduction is applied separately to both your pension and lump sum. 

If you are contributing to the 2008 section or the 2015 scheme the actuarial reduction is applied to your pension before commutation for the lump sum.

Final salary linking

A final salary link refers to the retention of current pay in the calculation of benefits from the 1995/2008 section (for officer benefits) or to the retention of active dynamising (revaluation) of past accrued benefits in line with the consumer prices index plus 1.5% (for practitioner benefits). This link is lost if you have a break in pensionable service of 5 years or more.

Dynamising factors

If you are contributing to the 1995 or 2008 section, practitioner benefits keep up with inflation by being dynamised.

Dynamised income is increased in line with the consumer prices index increases plus 1.5%.

This means that if CPI (consumer price inflation) growth is nil or negative the dynamising factor applied to increase GP income will be 1.5%.

State pension age

In the 2015 scheme pension age is linked to an individual's state pension age, or age 65 if that is later.