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
Updated: Monday 7 September 2020
Piggybank illustration

On this page we will give guidance on ill health retirement that isn’t covered by NHS Business Services Authority.

 

What qualifies as ill health retirement

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. This is known as a tier 2 (upper tier) award.

Read more about ill health criteria

 

How to apply to retire on ill health grounds

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

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.

 

How to apply if you are terminally ill

If you are under the scheme’s normal pension age:

  • 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 scheme’s normal pension age:

  • 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.

Read more about NHS pensions and serious ill health

 

Tier 2 pension criteria

‘Permanently incapable’

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.

In looking to establish permanence, the agencies use the civil burden of proof, i.e. the balance of probabilities.

‘Regular employment’

This means that in addition to being permanently incapable of undertaking your own NHS job, you would be permanently incapable of similar alternative employment.

‘Like duration’

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.

 

When to apply for ill health retirement

  • It is best to apply while you are in pensionable employment, when 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.
  • If you made your application while employed, but have since left and your application was unsuccessful, if you win your appeal your pension benefits will be backdated to your last day of employment.
  • You can apply retrospectively if your NHS employment was terminated on health grounds but you didn’t apply before leaving.

 

When your pension benefits will be paid

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.

If you are contributing to the NHS pension scheme in England and Wales or Northern Ireland and are successful in applying for ill health retirement it is necessary to submit your application for payment of retirement benefits within 12 months of the decision date.

If you are contributing to the NHS superannuation scheme in Scotland, you will be required to specify an expected retirement date when submitting an application for ill health retirement. You are not required to retire before being advised whether your application has been successful.

You must retire from all posts to claim your pension.

 

Applying for ill health retirement when on sick leave

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.

 

The involvement of your employer

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.

 

Possible outcomes of your application

The pensions agencies 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.

 

If your application is not successful

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 (IDR) 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.

You cannot claim your pension benefits under voluntary early retirement whilst appealing against your rejected application for ill health retirement.  However, should you be experiencing financial difficulties the BMA can make an approach to the pensions agency regarding any options available.

Normally, once retirement benefits have been paid it is not possible to change the basis on which they were claimed.

Timelines

Appeals in Northern Ireland need to be instigated within one month of the original decision. Whilst this limit may be extended to allow fresh medical evidence to be gathered, an initial contact with the scheme administrator needs to be made within one month.

First appeals in England and Wales do not have a time limit. Second appeals need to be made within six months.

Appeals in Scotland need to be made within six months. 

 

Appealing against being awarded tier 1 and claiming your benefits

You can appeal against being awarded tier 1 and claim your tier 1 benefits at the same time.

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

If you are currently ranked at tier 1 and going to be reviewed for tier 2 within three years, and are then successful, these benefits are only payable from the date this is granted.

 

Paying towards additional contracts and ill health retirement

Added years

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 normal pension age (terminal ill health) when 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 years 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 which 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.

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.

Additional pension purchase

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.

Additional voluntary contribution (AVC) or free standing additional voluntary contributions (FSAVC) contract

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.

 

Returning to work after ill health retirement

  • You can still return to work if you retire from ill health.
  • You cannot 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.
  • Returning to work will have implications for your benefits and you will need to consider the restrictions.

 

Returning to work and your tier 1 benefits

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

Read our guidance on abatement

 

Returning to work after you have been 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, or if your earnings exceed the lower earnings limit for National Insurance contributions regardless of who you are employed by.

Please note the restrictions outlined in the link below will still apply even if you work abroad.

Further information on returning to work and rejoining the NHS pension scheme on returning to work after ill health retirement from NHS Business Services Authority.

 

How your dependants’ pension will be calculated if you returned to work and was placed on tier 1

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 dependants’ benefits will be based on your original tier 2 pension.

If, however, you were to die after the 12 protected period then the dependants’ benefits will be based on your tier 1 pension.

 

Your ill health pension and annual allowance

  • 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 ill health retirement benefits 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. 
  • Medical advisers can confirm if you are suffering from ill health making it unlikely you can undertake gainful work (in any capacity) at any time up to your state pension age, enabling you to be exempt from any annual allowance charge.

 

Junior doctors applying 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.

 

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