Ill-health retirement: your pension options explained

If you have to retire early due to ill-health, it can become financially difficult, but your existing pension may be able to support you. 

On this page, find out more about ill-health retirement, what qualifies as ill-health and what you may need to consider if you’re planning to retire on medical grounds.  We also look at some of the ways you might be able to supplement your income if you’re forced to retire early, such as opening a competitive savings account.

Ill-health retirement, otherwise known as medical retirement, is when you’re allowed to access your pension benefits early due to sickness, a medical condition or a disability. In many cases, this means you can draw your pension before you reach the normal minimum pension age of 55 (or whatever the ordinary retirement date is for your pension scheme). A pension that offers you this benefit is typically known as an ill-health pension. 

What constitutes ill-health varies between pension providers (more on that below), but it typically means you have a physical or mental condition that prevents you from continuing to work in your normal job. 

It’s worth remembering that if you have a medical condition or disability, your employer has a duty to make ‘reasonable adjustments’ to ensure you’re not disadvantaged in the workplace. If these changes enable you to carry on working, you may not have to retire early. However, if the nature of your disability or condition means that working is still unfeasible, you’ll need to think about taking your pension earlier than you originally planned.

If you’re in a private or a workplace pension scheme, you may be able to claim benefits from your pension at any age because of ill-health. 

Your pension provider will usually have their own definition of what ill-health means. However, you’ll be considered for an ill-health pension if you’re no longer able to carry out your regular duties in your job because you’re physically or mentally ill. 

As an extreme example, if doctors have told you that you have less than a year to live, most pension scheme providers will likely give you your whole pension pot as a lump sum. This type of payment is called a serious ill-health pension lump sum, and it is tax-free and can be paid to you before you reach the age of 75. If you’re over 75, you will pay tax on this lump sum at your marginal rate of income tax.

Your pension scheme provider determines the amount you’ll receive from your ill-health pension. If you’re in a defined benefit pension scheme, you might be entitled to an early payout if you have a permanent ill-health condition. However, because this leaves less time for your pension to grow, you may receive a reduced pension depending on what’s in your pension pot. Other pension providers may offer to increase the amount you receive if you have a terminal condition because you won’t be claiming your pension for a longer period. 

If you’re in a defined contribution scheme, it may be possible to receive your pension benefits regardless of your age. You may be able to claim your pension in several ways, such as through a regular pension, tax-free lump sum, or a reduced pension. You should always check with your pension provider regarding your pension scheme’s terms and conditions to determine what you may receive if you become unwell.

Different pension schemes have different rules and criteria for early retirement due to ill-health. To qualify for ill-health retirement, you’ll need to prove the following:

• That you’re permanently incapable of performing your work duties because of your physical or mental condition
• That there are no more treatments or medications available for you to consider that would enable you to return to work
• That you can’t perform well in your full-time or part-time work
• Proof that your employer has first tried to offer you a less demanding role or reduced hours

The criteria and procedures you need to follow to claim medical retirement in the UK differ per pension scheme. You’ll need to ask your pension provider directly to find out what documents they will need from you. Common steps in most pension schemes include:

• Providing a complete copy of your ill-health retirement application form
•  Medical proof confirming your condition, such as your doctor’s assessment, signature and additional independent assessments from other medical advisers
• Confirmation from your employer that you’re retiring solely due to your medical condition

No, you can’t claim your state pension early because of ill-health. You’ll only be able to receive your state pension once you reach retirement age. However, it may be possible for you to receive some help with your cost of living. You may be entitled to benefits such as statutory sick pay, employment and support allowance or universal credit. 

You can find out if you’re eligible to claim these benefits on the UK government website, where you can also calculate which benefits you may be able to claim.

If you have a disability or a physical or mental health condition, your employer may offer reasonable adjustments so that you won’t be at a disadvantage at work. If you think you can continue to work given the new arrangements, you can ask your employer to make the necessary changes for you. 

You should consider what benefits you’ll get from continuing to work, as doing so might afford you a better quality of life and the ability to maintain your living expenses. It can also be good for your mental wellbeing. And, of course, working means you’ll continue to benefit from any employer-provided perks, such as medical cover and life insurance. 

If you’re unable to work and are considering early retirement because of your ill-health, it might be worth considering how much income you’ll have if you retire early. Factors such as age, the severity of your health and any benefits you can access will determine if you can retire.

And remember, while some medical conditions may prevent you from working, they won’t necessarily reduce your life expectancy. So if you need to access your pension early, your money might not last as long as you’d hoped. In this case, you’ll need to consider if and how you can supplement your income to maintain a comfortable lifestyle.

One way to increase your retirement income is to make your existing cash work harder. If you have some non-pension savings, you might want to consider investing in the stock market. While this can come with high rewards, there are risks involved that can lead to losing some or all of your investment value. 

A safer way to save for retirement is to open a high-interest savings account. Fixed rate bonds tend to pay the highest interest rates and may be a good option if you’re happy to lock away your money for a set amount of time. Plus, you won’t be at risk of losing your savings as the Financial Services Compensation Scheme (FSCS) protects deposits into UK-regulated savings accounts.

You can view competitive, high street-beating savings accounts from a range of partner banks through our marketplace. Simply register for a Raisin UK Account and apply online for free.