What happens to pension contributions if you get ill and can’t work

If you’re a member of a workplace defined contribution pension scheme and your employer continues to pay you when you’re ill, they’ll also pay their contributions into your pension.

They’ll continue to deduct your contributions from your pay, and pay these into the scheme.

However, if your pay reduces, or they stop paying you after a certain amount of time, the amounts paid into your pension will reduce, or stop.

If you’re a member of a defined benefit pension scheme, you’ll continue to build up your pension while you’re being paid.

But if your pay reduces, you pension will build at a slower rate.

If your employer stops paying you, you’ll stop building up your pension.

You might not be able to afford to continue paying contributions at the same rate – whether you’re employed or self-employed – if you have a:

• personal pension
• self-invested personal pension, or
• stakeholder pension scheme.

If you reduce your contributions, your pension pot will grow at a slower rate.

So you’ll have less money to use as an income when you decide to start taking it out.

It’s possible to protect some or all your contributions using waiver of premium, if your provider offers this. 

Waiver of premium means your contributions will continue to be paid for you if you are unable to make them for a time. Often this will be if you suffer a serious injury, illness, or disability. There is likely to be additional cost to include this option and you would usually need to select it when the pension is first set up.  

You could also use an income protection policy.

Many employers include this as part of their employment benefits package, but you can also set one up yourself.

An income protection policy can pay you an income if you’re unable to work due to ill health. This allows you to potentially continue making contributions to your pension.

Income protection policies will typically stop paying you an income when you reach State Pension age.

If you’re very ill or incapacitated, and you’re unlikely to be able to work again, you might be able to start taking money or an income from your pension early. This will be regardless of your age.

You’ll need to speak to your scheme administrator or pension provider to see if this is possible.

If you have a defined benefit pension and start taking an income from your pension early, the scheme might pay you a lower income than if you had continued working until your expected retirement date.

If you have a defined contribution pension pot and begin taking money out of it earlier, it might need to pay you an income for longer. This could mean you run out of money sooner.

In extreme cases, where your life expectancy is expected to be less than one year, the scheme’s rules might allow you to take the whole value of your pension as a tax-free cash lump sum. This is known as a ‘serious ill health lump sum’.

The level of State Pension that you’ll get when you reach State Pension age could also be affected if you’re unable to pay National Insurance contributions (NICs) at any point before you reach your State Pension age and don’t receive NIC credits.

If you get State benefits while you’re ill, check that you’re also receiving NIC credits. It isn’t possible to begin receiving an income from the State Pension until your normal State Pension age.