Ill-health early retirement—interpreting the scheme rules
Produced in partnership with Wyn Derbyshire of gunnercooke LLP
Ill-health early retirement—interpreting the scheme rules

The following Pensions guidance note Produced in partnership with Wyn Derbyshire of gunnercooke LLP provides comprehensive and up to date legal information covering:

  • Ill-health early retirement—interpreting the scheme rules
  • Nature of ill-health early retirement benefits
  • Pre-A Day—incapacity
  • Post A-day—Ill-health condition
  • Where scheme rules wider than post A-day ill-health condition
  • Where scheme rules narrower than post A-day ill-health condition
  • Validity of ill health pensions granted pre A-day
  • Assessing ill-health
  • Scheme rules—interpretation issues
  • Issues relating to inability to work
  • more

THIS PRACTICE NOTE RELATES TO REGISTERED OCCUPATIONAL PENSIONS SCHEMES

An important aspect of registered occupational pension schemes is their ability to provide ill-health (sometimes referred to as 'incapacity') benefits. Such benefits are particularly important in circumstances where members are obliged to retire from employment prior to their normal pension date (NPD) due to serious illness.

For more information, see Ill-health early retirement—decision-making and exercise of discretion.

Nature of ill-health early retirement benefits

Ill-health early retirement benefits are calculated in accordance with the scheme rules. Those provided by defined benefitoccupational pension schemes are frequently (but not invariably) more generous than 'normal' early retirement benefits.

For example, ill-health early retirement pensions provided by defined benefitoccupational pension schemes are often paid without actuarial reduction factors being applied to compensate for the fact that such pensions are being paid prior to NPD (and therefore for a longer period than usual). Also, in some cases, prospective pensionable service (from the date of leaving actual pensionable service due to ill-health to NPD) is included when calculating the ill-health pension. This however generally means that ill-health early retirement pensions are more expensive to provide than 'normal' early retirement pensions.

Pre-A Day—incapacity

Prior to A-Day (6 April 2006), in order to successfully claim ill-health benefits from a tax exempt approved occupational pension scheme, a prospective recipient had to suffer from 'incapacity', as defined in HM Revenue & Customs’ Practice Notes (IR12 (2001)).IR12 (2001), Appendix 1, Glossary

Under the Practice Notes, incapacity was described as:

'physical or mental deterioration which is sufficiently serious to prevent the individual from following his or her normal employment or which seriously impairs his

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