Ill-health retirement and your pension options

When health problems mean stopping work earlier than you planned, you may need to retire due to ill-health. Fortunately, if you’re in this situation, you might be able to access your pension savings sooner to help with your finances.

The eligibility for ill-health retirement due to medical reasons varies depending on your provider, so it's important to check the rules that apply to your situation. 

Below are some typical steps you can take to help with the process of claiming your pension due to ill-health. It's important to check this with your pension provider, to ensure you follow their exact process for making a claim.

The process of claiming ill-health retirement

Claiming ill-health retirement is different to claiming other pension payouts:

1. First, you’ll need to provide medical evidence to support your claim. This usually involves a declaration signed by your doctor, confirming that your health condition prevents you from working.
2. Contact your pension provider, or scheme's administrator, to find out the rules for ill-health retirement. They’ll guide you through the application process, which may include filling out specific forms and providing detailed health information.
3. Your pension scheme will see if you meet their criteria for ill-health retirement. They'll look at whether you are unable to do your job or potentially any job, depending on your condition and your pension scheme rules.
4. If approved, you'll be told how you can access your pension earlier than the normal minimum pension age. This might be in the form of regular pension payments, a lump sum, or a combination of both.

Remember, accessing your pension can have tax implications. For example, while a part of the lump sum you receive might be tax-free, the rest could be subject to income tax. Tax rules are subject to change and depend on individual circumstances. It might also mean you get less money than if you waited until your original anticipated retirement age, as your pension would have had less time to grow.   

Remember that the value of your pension can go down as well as up and you may get back less than has been invested. 

Claiming ill-health retirement for workplace pensions

Workplace pensions, like an Aviva Workplace Pension Scheme, often allow ill-health retirement. You’ll need proof of your health condition, a declaration signed by your doctor, to decide if you can get your pension early.

Your employer’s HR department should be able to help you with this.

Claiming ill-health retirement for personal pensions

Check with your pension provider about taking your pension early for health reasons. They'll explain what's needed, like medical evidence, to see if it's possible. 

If you have any critical illness cover or other insurance policies, these could provide additional financial support, so it's worth checking these too.

Bringing your pensions together into one pot could help by giving you a clear view of your retirement savings. You may also benefit from lower charges.

Depending on the type of pension you have, you may be able to bring them together into a new or existing SIPP (self-invested personal pension).

Consolidating pensions isn't right for everyone and there's no guarantee you'll be better off. Before you start, you should consider valuable benefits, like a guaranteed annuity rate, you might lose, leaving fees and any change to investment choices.

Another thing to be aware of if you're in ill-health when transferring your pensions are the Inheritance Tax (IHT) rules. If you die within two years of any transfer, it may be liable for IHT. The spouse’s exemption also won’t apply and so tax could be payable even if any death benefits were paid to your spouse.

If you’re unsure about transferring, it’s sensible to speak to a financial adviser. With some pensions you’ll have to take regulated advice before you can transfer them. There will be a charge for this advice.

Is it easy to find lost pensions and how do I do this?

If you're retiring early due to ill-health it's important to make sure you have access to all the pension money you may be owed. Tracking down any lost pensions you may have built up during your working life can help. The government offers a free service to help locate pension contact details for your lost pensions.

Our Find and Combine service can also help you track down pensions from past jobs for free. We provide you with a personalised dashboard containing key information so you can compare your pensions for certain valuable benefits and fees. If it's right for you, we can even combine them into a new or existing Aviva pension. Again, you should consider IHT rules before transferring any lost pensions. 

Remember, the value of any pension can fall as well as rise, and you may get back less than has been invested.