Ill Health Pension Cash Lump Sum
Can I cash in my pension early due to ill health?
If you are in poor health and can no longer work you can cash in your pension before 55, commonly known as an Ill Health Pension. There are two types of circumstances for cashing in your pension early due to ill health:
1. Early retirement due to ill health where you are unable to continue to work.
2. Serious ill health where you are not expected to live for more than a year.
Cashing in your pension early due to ill health
Early Retirement due to ill health
If you can no longer carry out your “normal occupation” due to ill health issues you can access your pension before 55. It is worth noting that some pension scheme have stricter rules than others on accessing your pension early. The term “normal occupation” can have different definitions depending on your pension provider. For instance, if you cannot carry out your normal occupation but can continue to work in a new position, then further information will need to be provided.
If you cannot continue to work at all then you will be able to access your pension early. If you are in ill health you may be able to access larger pension benefits because your life expectancy would more than likely be reduced.
Serious ill health
If you have been diagnosed with a serious illness with life expectancy of less than a year you will be able to access your whole pension as a serious ill-health tax free lump sum at any age. The requirements are:
- You’re under 75 (if you’re over 75 you pay Income Tax on the lump sum).
- You don’t have more than the lifetime allowance in your pension funds.
- You must have written evidence from a registered medical practitioner that you have less than 12 months to live.
- Your pension benefits must be uncrystallised.
- The payment of the benefits must extinguish all uncrystallised rights.
- You must have some unused lifetime allowance.
You will need to provide full medical evidence about your illness. Your pension scheme provider will want to see your medical history. The evidence will need to be provided by a medical practitioner who is fully-registered under the Medical Act 1983.
If the evidence comes from an online medical services provider via a web chat or video call then further evidence will be required.
Ill health with a defined benefit pension
If you are in ill health and have a defined benefit pension and your condition isn’t bad enough to benefit from any early retirement options direct from the scheme, then you can usually transfer out of the scheme into a personal arrangement. This will give you greater flexibly on how and when you can access your pension fund. It will also give you potentially improved death benefits.
The benefits of transferring your pension to a new arrangement include:
Improved Death Benefits
You will be able to leave 100% of your pension fund to whomever you like.
Flexible Retirement Options
You will have more choice and flexibility in how much you take and when you take it.
Cash Lump Sum
You can take a 100% cash lump sum – the first 25% is tax free. The rest is taxed at your marginal tax rate.
The rules on how to access your pension benefits early due to ill health depends upon your pension scheme rules and your personal circumstances.
Ill health pension resources
Ill Health Pension Resources
Below are some useful ill health pension resources:
Ill health pension advice
We were established in 2007 so have many years of experience successfully helping 1000’s of individuals. Some of them we advised to transfer their pensions and some of them we advised to leave their pensions where they are and not transfer them.
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Free Pension Transfer Guide & Initial Consultation
Complete the form below to receive your Free Pension Transfer Guide.
If you would like to find out if transferring or cashing in your pension is suitable for you, we can provide a free initial consultation known as abridged advice.
Simply return the enquiry form included in the guide and post it back in the free post envelope provided.
As part of the consultation we will look at:
- What existing pension plans you have in place.
- Whether you have the right type of pension to transfer.
- What your plans are for retirement.
- How much cash you can release.
- Whether your existing pension remains the best fit for you.
- The likely cost of more in-depth advice.
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Defined Benefit Pension Transfer Warning
Transferring away from a defined benefit pension scheme means you will lose valuable guarantees.
Taking benefits early will almost certainly reduce your pension income in retirement and is only suitable for a limited number of people and circumstances. This should not be seen as an easy option for raising cash.
If you release all your money from your pension early you will not have anything left to provide you with income in retirement.
When releasing cash from your pension, usually up to 25% is tax free, the balance is taxed at your marginal rate at the time and could change in the future.
Watch the FCA video explaining the expectations of financial advisers when advising you on defined benefit pension transfers.
Grove Pension Solutions Ltd is authorised and regulated by the Financial Conduct Authority (Reference number 465051).
What our clients say
Grove Pension Solutions assisted in moving my company pension to a personal pension, which will allow me to retire 7 years earlier than planned.
Since the FCA have made this option very difficult, Grove made the process very swift and smooth, with true professionalism throughout the process. The communication was excellent at all times, and there was always someone to answer a question if it arose.
I would highly recommend Grove Pension Solutions for your personal pension requirements.
Grove managed the transfer of my pension swiftly and kept me in touch with the process at all times. On occasions when I telephoned with questions they were patient, and regardless of who I spoke to, the staff were knowledgeable, friendly and reassuring. Grove Pension Solutions went above and beyond to complete my transfer and I cannot thank them enough.
Nothing is too much trouble, everything was explained in plain English and I was asked several times if I wanted to go through with any information again or any questions , all staff were professional and completely “knew their stuff” they returned calls when promised such a pleasure to do business with a very big thank you
In the final stages of my transfer, throughout the process the service has been very professional, regular updates by phone and email, the advisors are very friendly and explain the process in an easy to understand way. Have recommended to two other people already, wouldn't have any hesitation to use Grove Pension Solutions again, 10/10 thank you.