Early retirement because of illness, sickness or disability

What is ill-health retirement?

Ill health retirement is when you are able to access your pension early due to health reasons. 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 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 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 receive benefits from this policy rather than accessing your pension. This is because any income you get from your pension could reduce the payments from the income protection plan.

Ill health and defined benefit schemes

Some defined benefit schemes (which includes final salary and career average pensions) will begin paying your pension early in the event of permanent ill health.

Usually, this type of pension is reduced if it’s paid early. But many schemes won’t make this reduction if you take your pension early due to ill health.

The maximum amount payable is what you would have got if you continued working to your normal retirement date. This is based on your final pensionable earnings at the earlier date you began getting the pension income and any lump sum payable.

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.

A serious ill health lump sum paid before you reach the age of 75 will be paid tax-free, provided you have available lifetime allowance.

If you’re over the age of 75, the lump sum will be taxed as earnings.

Defined contribution pension pots

If you need to give up work due to ill health, it might be possible to access your pension pot early, regardless of your age. 

The amount you could get in the event of illness depends on the terms and conditions of the policy. Check with your pension provider what your options are if you’re unwell.  They might refer to these as ‘qualifying conditions’.

You should have the same options for taking your money as you would normally have at the age of 55.

If you decide to use some or all your pension pot to purchase an annuity to provide a guaranteed income, an impaired life or enhanced annuity could provide you with higher levels of income.

The annuity rate you’re offered is based on an estimate of your personal life expectancy. This is calculated using the medical information supplied.

If your life expectancy is reduced to less than one year due to illness, you might be able to take your whole pension pot as a cash lump sum. A serious ill health lump sum paid before you reach the age of 75 will be paid tax-free. This is provided you have available lifetime allowance. If you’re over the age of 75, the lump sum will be taxed as income.

Can I get my State Pension early due to ill health?

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.

Consider all your options

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, independent financial advice.

Is flexible or part-time working a possibility?

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.

Weigh up the benefits of carrying on working

It’s important to consider all aspects of work, not just financial ones, when making your decision.

If you’re able to work and supported to do so, the positive effects for you might include:

  • job satisfaction
  • better quality of life
  • improved emotional wellbeing
  • continuing to be a member of any employer provided benefits such as life assurance, income protection, health insurance, or pension arrangement. 

Voluntary redundancy versus early retirement

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.

How is ill-health retirement calculated?

Your workplace or personal pension

To help you work out your income if you retired early:

  1. Find out from your pension scheme provider what their rules are and whether you can take the pension early because of ill health.
  2. Ask your employer or pension provider what payment options are available and what income these could provide.

Other income

  • 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.

Find out when you can collect your State Pension

Find out how to get a State Pension forecast on the GOV.UK website

Does your income cover your expenses?

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.

Get more guidance or advice

Pension Wise can help you make sense of how and when you can access your pension pot. Pension Wise is a government service that offers free, impartial guidance over the phone.

You might want to get advice from a regulated financial adviser. They are qualified professionals who can give you individual advice on the best way of accessing your pension pot into your retirement income based on your circumstances.

Was this information useful?
Thank you for your feedback.
We’re always trying to improve our website and services, and your feedback helps us understand how we’re doing.
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Talk to us live for…
Talk to us live for…
Talk to us live for pensions guidance using…
Talk to us live for money guidance using…
0800 011 3797* Hours
  • Mon – Fri:9.00am – 5.00pm
  • Sat, Sun and bank holidays:Closed

* Calls are free. We’re committed to providing you with a quality service, so calls may be recorded or monitored for training purposes and to help us develop our services.

Talk to us live for money guidance using the telephone
0800 138 7777* Hours
  • Mon – Fri:8.00am – 6.00pm
  • Sat, Sun and bank holidays:Closed

* Calls are free. We’re committed to providing you with a quality service, so calls may be recorded or monitored for training purposes and to help us develop our services.

Talk to us live for pensions guidance using web chat
Hours
  • Mon – Fri:9.00am – 6.00pm
  • Sat, Sun and bank holidays:Closed
Talk to us live for money guidance using web chat
Hours
  • Mon – Fri:8.00am – 6.00pm
  • Sat:8.00am – 3.00pm
  • Sun and bank holidays:Closed
Talk to us for pensions guidance using our web form

We aim to respond within 5 working days

Talk to us for money guidance using our web form

We aim to respond within 2 working days

Talk to us live for money guidance using WhatsApp
+44 77 0134 2744

Download app: WhatsApp

For help sorting out your debts, credit questions or pensions guidance. For everything else please contact us via Webchat or Telephone.