Ill-health retirement: early medical retirement

Ill-health retirement is when you can access your pension early because of poor health. You’ll sometimes see this referred to as medical retirement or retirement on medical grounds.

If you have a private or workplace pension, you might be able to begin taking an income and/or lump sums from your pension at any age due to ill health. The normal minimum retirement age of 55 (57 from 2028) doesn’t apply.

Different pension schemes have different rules, so ask your pension provider or scheme administrator for details. Some allow you to access your pension early if it looks as if you won’t be able to return to your job due to physical or mental illness. Other schemes might require that you won’t be able to do any job, not just your own.

In cases of serious ill health where your life expectancy is less than one year, you might be able to take all your pension as a tax-free lump sum.

You’ll need to provide supporting medical evidence if you want to access your pension due to ill health.

If you have an income protection plan (also known as permanent health insurance), you need to seriously consider whether you choose to access your pension. This is because any income you get from your pension could reduce the payments from the income protection plan. You should also check whether accessing your pension may affect eligibility for state benefits. 

It’s not possible to receive your State Pension before your State Pension age, due to ill health. But you might be entitled to some other state benefits, such as:

• Statutory Sick Pay
• Employment and Support Allowance, or
• Universal Credit.

If you’re thinking of retiring because of ill health or a disability, take time to consider your options.

Work out what each one will mean for you financially, as well as for your health and wellbeing. And it’s important to get expert, regulated financial advice.

If you’re disabled or have a health condition, your employer has to make ‘reasonable adjustments’ so you’re not disadvantaged at work.

If you think you could continue at work if your employer made changes to your job, your hours or your workplace, you can ask them to do so.

They have to act on your request as long as it’s reasonable.

Maybe your employer has offered you redundancy as an alternative to early retirement?

Don’t be pushed into making a quick decision. Anti-discrimination laws mean you’re protected if you’re disabled or have certain health conditions.

For example, your employer must keep your job open for you and can’t put pressure on you to resign because you’ve become disabled.

If you’re happy to consider redundancy, make sure you weigh up all the pros and cons.

One advantage of taking redundancy might be the redundancy pay. Find out exactly how much you would get and whether you’d need to pay tax on it.

If you’re planning to use your redundancy pay as income, make sure you draw up an accurate budget to calculate how long it will last.

If you work in the public sector, you might prefer to take redundancy in the hope that your condition improves and you’re able to return to work at some point. This might not be possible if you opt for early retirement.

Speak to your union representative to find out exactly what your options are, or get advice from your workplace occupational health department.

• Make sure you claim everything you could be entitled to because of the extra costs associated with being disabled or having a long-term health condition – for example, Personal Independence Payment.
• Check whether there’s any support you can claim to replace your lost earnings if you have little or no pension income – for example, Employment and Support Allowance.
• Claim help with essential costs – for example, Housing Benefit.

Draw up a budget to find out how much you need to cover your regular outgoings.

This is an essential step when deciding whether you can afford to retire early.