If you're unable to work due to illness, you may be able to access your pension early – even before the usual retirement age.
If you are facing this possibility, it is important that you work with your employer to see if any changes to your role are possible. If it is clear you can’t keep working, you can access your pension early. You will need medical evidence from a doctor confirming your condition.
Each pension provider, including us, will assess whether you meet their criteria for ill-health retirement.
If your life expectancy is less than a year, you may be able to take your entire pension as a tax-free lump sum, depending on your age and pension scheme.
If you would like to talk to us about ill health retirement, feel free to call us on 020 7898 1802, and we can talk you through the process.
State benefits
Accessing your pension early due to your health may affect State Benefits or any income protection plans you have, so it’s worth checking how it impacts your finances.
If you receive Universal Credit, Income Support, or Housing Benefit, pension income may reduce or eliminate your entitlement. Regular pension withdrawals are treated as income, while lump sums may be considered capital, affecting your eligibility.
Some disability benefits, like Personal Independence Payment (PIP), are not affected by pensions, so these will continue.
Carer’s Allowance may be affected if your pension income exceeds the earnings threshold. It is worth checking this if you are unsure who this will affect you.
If you take a large lump sum from your pension, it may be treated as capital wealth, affecting Council Tax Support and other local benefits.
If you spend, transfer, or give away pension money to qualify for benefits, the government may still count it as income, reducing your entitlement.
Income protection
Income protection is a type of insurance that provides financial support if you're unable to work due to illness or injury. It ensures you continue receiving a portion of your income while recovering. Payments typically start after a waiting period (e.g., 4 weeks to 2 years), depending on your policy. The payouts are usually tax-free, making them a reliable source of income.
Your employer might have a policy you can join. If you would like to set up your own policy, MoneySuperMarket is a good place to start.
