Can I cash in my
due to ill health?
Guide to cashing in your pension early due to ill health
Cashing in your 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:
- Early retirement due to ill health where you are unable to continue to work.
- Serious ill health where you are not expected to live for more than a year.
If you have a defined benefit pension or final salary pension with your former employer, their scheme will have rules on accessing your pension 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 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 of £1,055,000 in 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 uncrystalised.
- The payment of the benefits must extinguish all uncrystalised 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.
Defined Benefit Pension Transfer
If you are in ill health and have a defined benefit pension, you can 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 improved death benefits.
The benefits of transferring your pension to a new arrangement include:
- Flexible Retirement Options: You will have more choice and flexibility in how much you take and when you take it.
- Improved Death Benefits: You will be able to leave 100% of your pension fund to whom ever you like.
- 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.
You may be able to take all your defined benefit pension as a lump sum if the total value of your funds is no more than £30,000.
The rules on how to access your pension benefits early due to ill health depends upon your pension scheme rules and your personal circumstances.
If you are in ill health and want to know and understand your options Grove Pension Solutions can provide you with FCA regulated advice on how best to access your pension early.
This service only applies to pensions in the UK.
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.
Ill Health Pension Resources
Below are some useful Ill Health Pension resources:
- The Pension Advisory Service – Ill health
- Money Advice Service – Early retirement because of illness or disability
- Pension Wise – Ill health and pensions
- Pension Wise – Your pension when you die
- The Government – Taking your pension early because of ill health
- Macmillan – Accessing your private pension early
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Access your pension early due to ill health – Advice
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Grove Pension Solutions Ltd is regulated by the Financial Conduct Authority.
We are financial advisers specialising in helping people access their pension early and have been doing this for many years now.
We can provide you with specialist FCA regulated advice on accessing your pension early due to ill health.
Our service allows you to evaluate your options without paying a penny. It’s only if you decide to go ahead with transferring your pension pot that you pay a fee. You are under no obligation to go ahead if you don’t want to.
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Found your service to be very professional. Your staff were polite and friendly ready to explain / clarify any query I had relating to release of my pension fund(s). Even went the ‘extra mile’ to update me via phone and text.
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