What is ill-health retirement?

If an employee leaves work due to illness they may be able to receive immediate payment of their benefits on the grounds of ill-health.

Who qualifies for ill-health benefits?

• the employee must have met the 2 years vesting period in the scheme 
• the employee is not immediately capable of undertaking any gainful employment.
• the employer must be satisfied that the employee is permanently unable to do their current employment job until their Pension Terminology - A Glossary Of Key Terms (their State Pension Age). The employer must terminate the employment on these grounds.

'Gainful employment' means paid employment for not less than 30 hours in each week for a period of not less than 12 months.

The employer must base their decision on the opinion from an IRMP.

If the employee satisfies the above criteria, then an ill-health pension is payable. There are graded levels of benefit based on how likely the employee is likely to be capable of gainful employment after they leave.

The different levels of benefit are:

• Tier 1 - if the member is unlikely to be capable of gainful employment before their Normal Pension Age, ill-health benefits are based on the pension they have already built up in their pension account at their date of leaving the scheme plus the pension they would have built up, calculated on assumed pensionable pay, had they been in the main section of the scheme until they reached their Normal Pension Age.
• Tier 2 - if the member is unlikely to be capable of gainful employment within 3 years of leaving, but are likely to be capable of undertaking such employment before their Normal Pension Age, ill-health benefits are based on the pension they have already built up in their pension account at their date of leaving the scheme plus 25% of the pension they would have built up calculated on assumed pensionable pay, had they been in the main section of the scheme until they reached their Normal Pension Age.
• Tier 3 - if the member is likely to be capable of gainful employment within 3 years of leaving, or before their Normal Pension Age if earlier, ill-health benefits are based on the pension they have already built up in their pension account at leaving. Payment of these benefits will be stopped after 3 years, or earlier if they are in gainful employment or become capable of such employment, provided they have not reached their Normal Pension Age by then. If the payment is stopped it will normally become payable again from their Normal Pension Age but there are provisions to allow it to be paid earlier. Details would be provided at the time.

Please note that permanent incapacity is based on the employee's current employment. If the employee has more than one contract of employment separate opinions must be made for each post where ill-health retirement is being considered.

We appreciate this is not something an employer may deal with very often, so please find the slides below from a recent training session for your reference.

Ill Health Training 2023 (gi.ui.mediatype.powerpoint, 6 MB)(opens new window)