NHS Ill-Health Retirement Explained: Tier 1 and Tier 2 Pensions

If a long-term illness or injury means you can no longer do your NHS job, the NHS Pension Scheme can pay your pension early, without the usual reduction for early payment. In more serious cases it adds extra pension too. This is called ill-health retirement. This guide explains the rules for the 2015 scheme, which all active members are now in, and notes where older sections differ.

This is general information, not advice. NHS Pensions decides every application using medical evidence, and your own record determines the figures.

Who can apply?

To be considered for ill-health retirement, you generally need to:

• have at least two years of membership in the scheme
• be under your normal pension age
• be unable to do your NHS job because of illness or injury
• have that incapacity likely to last until your normal pension age

In the 2015 scheme, normal pension age is your State Pension age, or 65 if that is later.

Tier 1 and Tier 2

There are two levels of ill-health retirement.

Tier 1

You qualify for Tier 1 if you are permanently unable to do your own NHS job because of your condition. Tier 1 pays the pension you have built up so far, straight away, with no reduction for early payment.

Tier 2

You qualify for Tier 2 if you meet the Tier 1 test and you are also unable to do any regular employment of similar hours. Tier 2 pays your built-up pension with no reduction, plus an enhancement.

For the 2015 scheme, the enhancement is half of your prospective membership: half the years you would have worked between leaving and your normal pension age. For the older 1995 and 2008 sections, the enhancement is larger: two-thirds of prospective membership.

A worked example

This is a simplified illustration of how the 2015 scheme enhancement works, not a quote.

A Band 6 physiotherapist aged 45 has built up £8,000 a year of 2015 scheme pension. Their pensionable pay is £42,170 and their normal pension age is 67.

• Tier 1: pension of £8,000 a year, paid now with no early payment reduction.
• Tier 2: prospective membership to age 67 is 22 years. Half of that is 11 years. In the 2015 scheme each year builds 1/54th of pay, so 11 years adds roughly 11 × £42,170 ÷ 54, about £8,590 a year. Total pension: about £16,590 a year.

The real calculation uses your actual pensionable pay and record, so ask NHS Pensions for an estimate before deciding anything.

Lump sum

As with normal retirement, you can usually give up some pension for a tax-free lump sum, at £12 of lump sum for each £1 of yearly pension given up in the 2015 scheme. Members of the 1995 section usually get an automatic lump sum as well. The pension lump sum calculator shows how the trade-off works.

If your life expectancy is very short, usually less than a year, you may be able to take all of your pension as a one-off lump sum. This is called a serious ill-health lump sum.

How to apply

1. Talk to your employer and occupational health. They will usually look at adjustments, redeployment or reduced hours first.
2. Complete the application with your employer. It includes sections for you, your employer and medical evidence.
3. Provide medical evidence from your GP, consultants and occupational health. Strong, specific evidence about how your condition affects your ability to work matters most.
4. NHS Pensions' medical advisers assess the claim and decide whether you qualify for Tier 1, Tier 2 or neither.
5. If refused, you can ask for a review and, after that, use the scheme's internal dispute resolution procedure.

Apply while you are still employed, or within the time limits that apply after leaving. Leaving first can make the process more complicated.

Tax and other benefits

Ill-health pensions are taxable as income in the normal way. The tax-free lump sum is usually free of tax within the normal limits. Taking a pension can affect means-tested benefits, so check with an adviser if that applies to you.

Working after ill-health retirement

You may be able to do some work after retiring on ill-health grounds, but there are restrictions, especially on returning to NHS employment. Tier 2 pensions in particular can be affected if you return to work. Always check with NHS Pensions before taking a new job.

Common questions

Do I need to be off sick to apply? Not necessarily, but you must be unable to do your job because of your condition.

What if my condition improves? Discuss it with NHS Pensions. The rules on reviews and returning to work are specific to your situation.

Can part-time staff apply? Yes. The tests consider work of similar hours to your NHS job.

Evidence that helps an application

Ill-health retirement decisions depend on medical evidence, so the quality of that evidence matters. Helpful evidence usually:

• describes how your condition affects your ability to work, not just the diagnosis
• covers the long term, ideally explaining whether improvement is expected before your normal pension age
• lists the treatments tried and their effect, because assessors consider whether further treatment could help
• comes from specialists who know your condition, alongside your GP and occupational health
• is up to date

Keep copies of everything you send. If your application is refused, the decision letter will explain why, which helps you decide what extra evidence to provide if you ask for a review.

Estimate your pension

The pension retirement calculator estimates your 2015 scheme pension, which is the starting point for Tier 1.