Ill health retirement and your pension for transitional members

This guidance addresses the main 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.

Location: UK
Audience: SAS doctors Consultants GPs
Last reviewed: 10 February 2022
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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

This guidance addresses the main 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 and details the position after the remedy period when all members move to the 2015 pension scheme from 1 April 2022.

If you are unable, through illness, to work in your present job and your condition is permanent (up until your state pension age), you may be able to retire early and take your pension benefits without actuarial reduction (tier 1/lower tier) and potentially with an enhancement (tier 2/upper tier).

Your 1995/2008 section benefits will be payable based on final salary linking and current dynamising factors (unless you have had a break in pensionable service of five years or more) but are not subject to an enhancement under either tier.

You can also read our full guidance on ill health retirement criteria and the application process.

 

The McCloud remedy

The McCloud remedy means that members in scope will be revered to their legacy section for the remedy period (1 April 2015 to 31 March 2022). From 1 April 2022 all members will join the 2015 pension scheme.

Any members who were denied ill health retirement, or were approved for tier 1 or tier 2 during the remedy period will be able to have their applications and benefits reassessed.

This cannot be undertaken until the regulations to implement the remedy have been made and this is expected to be by October 2023 at the latest.

Read more about the McCloud remedy and what you need to do.

 

Enhancement

Will my previous 1995/2008 section benefits be enhanced if I qualify for tier 2?

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. There will be no enhancement applied.

If you have not had a break in service of five years or more any officer benefits will continue to be linked to your salary up to retirement. Any practitioner benefits will be dynamised up to retirement.

If you have had a break in service of five years or more any officer benefits will be based on the pay you received leading up to the break. Any practitioner benefits will be dynamised up to the break.

Such benefits affected by a break in service of five 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 enhancement applies only in relation to the benefits accrued in the 2015 scheme.

How will any tier 2 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.

Example

If your state pension age is 67 and you are now aged 47, and you are granted a tier 2 pension you will receive a 10 year enhancement to your 2015 benefit accrual, applied as follows.

Accrued 2015 pension x (calendar length service in the 2015 scheme + enhancement of 50% of your prospective service to state pension age/ calendar length service in the 2015 scheme).

Qualifying as a transitional member

I have less than two years in the 2015 scheme

You will still qualify for ill health retirement. So long as you have at least two calendar years membership in total between both your previous section and the 2015 scheme, you can apply to retire on health grounds in line with the requirements.

I have opted out of 2015 scheme but am in NHS employment

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. There is no enhancement to the pension.

I have left NHS employment and have deferred benefits

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. There is no enhancement to the pension.

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. In these circumstances you can apply to have your benefits paid as a lump sum.

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

Added years and additional pension

I am paying towards an added years 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 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 contract’s 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

If this began whilst you were a member of the 1995/2008 section:

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 you 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 even if you made the purchase by lump sum.

I have deferred additional pension purchase and had a break of 12+ months

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

I have an additional voluntary contribution contract

You should approach your contract 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.

Terminal ill health

Read more about applying for terminal ill health retirement.

What benefits are payable?

If you are under the state pension age you will be granted a tier 2 enhancement in relation to your 2015 pension and receive your accrued unenhanced 1995/2008 pension (unenhanced. 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 accrued/unenhanced 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.

Returning to work

Retiring on ill health grounds won’t prevent you from working again. However, there may be financial implications for your NHS ill health pension if you do. You are not expected 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 grounds. However, returning to work will have implications for your benefits, particularly if you are in receipt of tier 2 benefits, and you will need to consider the restrictions below.

Can I rejoin the 2015 pension scheme if I have a tier 1 pension?

If you were 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 health grounds and return to NHS employment before age 50.

If you were 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.

Can I rejoin the 2015 pension scheme if I have a tier 2 pension?

If you were in the 1995 section you will not be able to rejoin the 2015 scheme. The exception to this is that should your tier 2/upper tier ill health pension be replaced by a tier 1/lower tier pension you may be able to rejoin the 2015 scheme, after a year of returning to NHS employment, if you are under age 50 at the time.

If you were in the 2008 section you will be able to rejoin the 2015 scheme after a year of returning to NHS employment so long as you meet the eligibility criteria.

What happens to my tier 1 pension if I return to work?

If you retire under tier 1 and return to NHS employment before you reach your state pension age, the abatement rule means that 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). 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, 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.

Your pension is not subject to abatement if you return to work with a non-NHS employer.

Can I reduce my earnings so my pension isn’t abated?

If you exceed the earnings limit and your pension is abated, you can then reduce your hours or stop working to bring your earnings back within the limit. Your pension will be restored to its previous level from the date that your post retirement NHS earnings fall below the earnings margin.

What are the restrictions if I am tier 2 and I return to work?