Ill health retirement - NHS Pension Scheme

Eligibility for ill health retirement in the NHS pension scheme

We cannot make a recommendation about whether you will qualify for ill health retirement (IHR), nor which tier you may be awarded. Eligibility is dependent on a number of factors. These are that:

• you are a current member of the NHS pension scheme and have been for at least two years
• you are making an application prior to your scheme retirement age
• you have a long term health condition that has a substantial impact on your current or future employment
• you have robust medical evidence to support your application
• you make the application while you are still employed.

We recommend that you obtain an estimate of your pension based on IHR from your pension provider or your employer. You may also wish to consult your Total Reward/Annual Benefit Statement to check your pension value.

If you are dismissed for any reason other than your health, such as for misconduct, you may not be entitled to ill health retirement benefits. Please be aware, your employment can be terminated on ill health grounds prior to any application/decision about IHR. Please contact us  if your employer intends to terminate your contract.

There are two tiers of ill health retirement. The benefits you get will depend on whether or not you are capable of undertaking employment elsewhere. The initial test is that you are unable to perform effectively the duties of your employment due to permanent ill health (Tier 1). If this is accepted, the amount of pension payable depends on whether you are also deemed to be unable to undertake any 'regular employment' (Tier 2).

Please read this advice guide in conjunction with the ill health retirement advice given by the NHS Business Services Authority (England and Wales). 

For Scotland, go to: www.sppa.gov.uk. For Northern Ireland, go to http://www.hscpensions.hscni.net/

Ideally, the possibility of an IHR application should be discussed in absence management meetings. If not, you should discuss your IHR application with occupational health, human resources, and your manager before your contract is terminated. Once your contract has been terminated the eligibility criteria for an ill-health pension change.

Please be aware, your employment can be terminated on ill health grounds prior to any application/decision about ill health retirement. Contact us if your employer intends to terminate your contract.

The claim form is titled Application for consideration of ill health retirement benefits (AW33). It’s important to realise that this is NOT a claim for your pension but a request to see what you would be granted if you were to go on to complete the AW8 Claim for pension benefits form on the grounds of ill health. There are three sections to the IHR claim form: one to be completed by your employer, one by you as the applicant and the final one by a medical practitioner (this is usually completed by your occupational health physician who will have requested a report from one or more consultants or specialists involved in your treatment/care).

You should not rely on evidence being provided only by your GP as the scheme’s medical advisers are unlikely to accept this as sufficiently robust evidence of permanent incapacity for work. Your medical evidence should clearly say that your condition is permanent and that appropriate treatment options have been explored. If any doubt is expressed then the application will be refused or deferred. If you have been told that further treatment will not improve your ability to return to work, it is important that this is stated in your application and preferably backed up with a consultant’s report.

An initial decision can be made in 4 weeks, but may take longer. If you are happy with the decision, you must complete an AW8 form to claim your pension benefits. Once the pensions agency has received the AW8 form it will usually take approximately 8-12 weeks before you will receive your pension. It cannot be paid until your contract has been terminated and will be backdated to your termination date or date of application (whichever is the later). You will receive a letter explaining how your pension has been calculated, including any enhancement payable, which you will want to check against any estimate you have previously received. Your pension will be paid into your bank account monthly on a regular date specified by the Paymaster (in England and Wales). The lump sum will be paid during the first month.

Getting the timings right in your application can feel difficult. More employers now seek to serve notice of termination of contract at the same time as the IHR application is put forward. This can leave you feeling quite vulnerable as you have no guarantee of the outcome. Try to negotiate/agree that notice is not served until the initial pension decision is received.

It is very important that you do not, or are not seen to resign. It is only when your employer terminates your contract that you may be able to receive full pay during your notice period. Increasingly, NHS employers are trying to avoid termination of contract on grounds of ill health capability and are encouraging staff to resign once they have been accepted for IHR. You are advised not to do this as you will relinquish any potential entitlement to contractual notice pay or accrued annual leave.

Tier 1 – unable to undertake current employment due to permanent ill health

Your pension is based on the contributions you have made. It is not reduced because you are retiring early (as in Voluntary Early Retirement which is abated). It is not enhanced by any additional membership and is payable for life.

Tier 2 – in addition to Tier 1, also unable to undertake regular employment of like duration

Your pension is as above but with an enhancement equivalent to 2/3rds of your prospective service to normal benefit age or 1/2 prospective service if you are in the 2015 section of the scheme. This enhanced pension is also payable for life.

If you are terminally ill and do not expect to live longer than a year, you can apply to exchange all of your ill-health benefits for a one-off (usually tax-free) lump sum payment. If you have provided sufficient medical evidence, this will happen automatically and you will automatically be awarded a Tier 2 pension.

If you are unfit for any kind of work you can claim or continue to receive Employment Support Allowance (ESA) from the DWP in addition to your occupational pension. Any occupational pension you receive over £85 per week will reduce the amount of ESA you receive by half of the excess. For example: if your pension is £85.50 per week, your ESA is reduced by 25p.

If your IHR was due to an industrial injury or disease that occurred before 31 March 2013, you may also be entitled to NHS Permanent Injury Benefit (http://www.nhsbsa.nhs.uk/IBS/796.aspx) (PIB). This claim can be made at the same time as your ill health retirement application. NHS Pension is regarded as income for the purposes of assessing PIB.

Payment of an occupational pension does not impact on any Industrial Injuries Disablement benefit you receive from the DWP.

If you have left your job or your contract is already terminated

If you are no longer in NHS service but wish to apply for an ill health pension you can apply directly to NHS Pensions. This is called a claim for deferred/preserved benefits. Your family doctor will need to complete the medical section of your application form. You will need to satisfy the requirement for Tier 2 pension. If this is granted you will not receive any enhancement and will only be paid a pension based on the contributions you have made.

As the "burden of proof‟ rests on the appellant it is your responsibility to gather all the evidence you consider or are advised is necessary to mount an appeal.

You cannot expect your scheme administrator (or their medical advisers) to seek medical reports for second opinions. In exceptional circumstances it is possible to request a medical examination but this is rarely granted.

Once you have all further papers you need, you should send them to your scheme administrator along with the Internal Dispute Resolution form DRP1.

NB it is no longer possible to request payment of an actuarially reduced early retirement pension when appealing Tier 1 decisions.

Number of appeals possible and time limits

It is possible to appeal twice through the dispute resolution procedure. If after that you still believe your case has been mishandled you can ask the Pensions Ombudsman to investigate.

If you live in England, there is no time limit to submit a first stage appeal. However, if you are in Scotland or Northern Ireland, you must complete form DRP1 within 1 month of the original decision. This time limit may place additional pressure on you as there is almost always a need to submit additional/new medical evidence with an appeal. This can sometimes take weeks or months to obtain. As such, there may be the need to request an extension of time in order to offer the appeal the best chance of success.

NHSPA/SPPA/HSC commit to make a decision on a stage 1 IHR appeal within 40 working days or they will write to notify within that time to tell you why it won't be possible to make a decision in that time frame. They will advise you when you will receive a decision.

A second stage appeal must be submitted using form DRP2 within six months of receiving the decision on the first stage appeal. Again NHSPA/SPPA/HSC will either commit to make a decision on your stage 2 appeal within 40 working days or they will write to you within that time to tell you why it won't be possible to make a decision in that time frame and advise you when you will receive a decision.

First stage appeals are handled by the disputes officer and additional medical evidence is considered by a different medical officer to the one that made the initial decision.

Second stage appeals are handled by a scheme manager and once again, additional medical evidence is considered by a different medical adviser to the one previously involved in earlier decisions.

Escalating an appeal to the Pensions Ombudsman

The Pensions Ombudsman will usually expect you to have gone through the two appeal stages outlined above before they will look into a case.

The Ombudsman can only investigate and give a decision on any complaints or disputes relating to interpretation of the law or maladministration.

In addition, at any time during your appeal process you can ask The Pensions Advisory Service (TPAS) for assistance.

Starting work after any period of 'unemployment' (whether voluntary or not) can be daunting. Remember you cannot work as a nurse if your NMC registration has expired. Read more on NMC registration in our advice guide.

Any earnings you have from employment will be taxable, this includes your pension if you receive one.

You can return to work in the NHS following early or ill health retirement but if you are receiving an NHS pension you will need to bear in mind the income restrictions for future NHS employment. Your combined income of new NHS earnings plus NHS pension cannot equal more than the NHS earnings you had before you returned. If it is, your pension will be capped (this is called abatement). In addition, you must have a break in service of at least 24 hours and work only 16 hours per week or less in the first month after retirement. Whether you will be able to re-join the NHS pension scheme will depend on whether you are already receiving pension benefits and your age.

If you are not receiving an NHS pension, but have preserved contributions, seek advice about your pension options from an independent financial adviser.

If your pension was awarded on or after 1 April 2008 your pension may be affected depending on what tier pension you were awarded and the nature of your future employment.

Tier 1 pension – this has been granted on the basis that you are unable to undertake your current job, but are able to undertake future work. The only restriction is therefore a possible abatement of pension if you return to NHS employment. If your NHS pension plus your new NHS earnings exceeds your NHS earnings before you retired, the ‘unearned’ portion of your pension will be abated. Unearned means any part of the pension that would be paid in addition to that over and above Voluntary Early Retirement arrangements (where the pension is reduced by actuarial factors provided by the Government Actuaries Department).

Tier 2 pension – this has been granted on the basis that you are unable to undertake regular employment so there are a number of restrictions to be aware of. These differ depending on whether your new employment is in the NHS or not. All Tier 2 pensioners are subject to an annual earnings declaration until normal retirement age.

If you start a new job in the NHS you will remain entitled to your Tier 2 pension for 12 months after the start of new NHS employment so long as you don’t earn over the current National Insurance Lower Earnings Limit (LEL). If earnings exceed the LEL in the first 12 months your pension will be reduced to its Tier 1 level as soon as earnings exceed that amount. The start of the 12 month period is the first day you start work in the NHS after your retirement. For members working on a nurse bank, the start of the 12 month period is the first date of actual work, not the day you register with the bank.

Should your pension be reduced to its Tier 1 level, you have a one-off opportunity to regain the Tier 2 pension if, within 12 months of starting employment, you have to cease work due to ill health. You would need to apply to the pensions department and have medical evidence to confirm that continuing employment is not possible due to ill health. You would not be able to rejoin the NHS pension scheme during this 12 month window otherwise your right to regain the Tier 2 pension will be lost.

If you start a new job outside the NHS you will be able to earn up to the NI LEL each tax year and remain on your Tier 2 pension. If LEL is ever exceeded, your pension will be reduced to its Tier 1 level. You will also have a one off opportunity to regain Tier 2 pension if continuing employment not possible due to ill health (see above).

Be aware of the requirements of the Equality Act 2010 as you may need adjustments made to the new job.

If you are self-employed and worried about the effects of your income on your ill health retirement pension, seek tailored advice. This could be from an accountant, an independent financial adviser (this may include using the services of Lighthouse Financial Advice through RCN Xtra), NHS Pensions or The Pensions Advisory Service.