Review of a tier 3 ill-health pension
Member responsibilities and employer enquiries Back to top
The member receiving tier 3 benefits must inform the former scheme employer upon starting any employment while the benefits are in payment and must answer any reasonable inquiries made by the authority about employment status including questions on pay received and hours worked.
If a member fails to answer these inquiries the employer can stop the pension. The employer can determine that a member's employment can be reasonably judged to be likely to continue for 12 months even if it does not.
Why is there a review for tier 3 ill health retirement?
A tier 3 benefit is an interim pension payable for a maximum of 3 years or until the member returns to work. It is not payable once gainful employment is found. The employer will need to check the member's employment status where payments have continued for 18 months (first mandatory review). Payments will stop if gainful employment has been obtained.
If it is established that the member is not in gainful employment at the review the employer must obtain a further medical certificate from an independent registered medical practitioner (IRMP).
When is the tier 3 review carried out?
When the benefits have been in payment for 18 months. If a member reaches normal pension age during that period, they are exempt from the review although the benefit will be stopped if further gainful employment is found during that 18-month period.
Who carries out the tier 3 review?
The previous employer, or successor body must check the tier 3 member's employment status if payments have continued for 18 months. The Staffordshire Pension Fund will notify employers of any members approaching the review date, one month before that review date.
How many times does the employer undertake a tier 3 review?
The employer is only required to undertake a review once, when payments have been continuous for 18 months. There is no requirement to undertake a further review, but the case can be looked at again in the light of further medical evidence.
Please note: there is no review required for tier 1 and 2 ill-health benefits.
What does an employer need to do at the review stage?
The employer will need to obtain a further certificate from an IRMP as to whether, and if so when, the member will be likely to be capable of undertaking gainful employment and make a decision on the tier 3 pension.
Employer's review decision Back to top
The employer can make the following decisions at the review, which must be supported by the IRMP certificate:
Where the member is judged to still be incapable of gainful employment
- To continue payment for any period up until the 3 years limit
- To uplift the 3rd Tier pension to a permanent 2nd Tier Ill Health pension
Where the member is judged to now be capable of gainful employment
Continuing payment for up to 3 years
Tier 3 payments can continue up to a maximum of three years after the date of termination of employment.
Uplifting a tier 3 pension to a tier 2 pension
Where the medical assessment justifies this, the employer can decide to award an enhanced tier 2 benefit from the date of the decision. If the employer decides to uplift a member to a tier 2 benefit, then the member will be awarded an enhancement to their benefit of 25% of their potential membership from date of leaving to normal pension age.
There may be tax implications for the award of the enhanced tier 2 pension. Full details are available from HMRC's website.
Ceasing the pension
What happens to the pension if the member has obtained work when the employer conducts the review at 18 months?
The employer is required to stop payments if the member is either employed in gainful employment as defined in the LGPS regulations or at review is deemed capable of gainful employment. The employer should notify Staffordshire Pension Fund without delay (by completing part 2 of the tier 3 – 18-month medical review certificate) that the member's pension payment should be stopped and whether any overpayment is to be recovered.
What happens if the member fails to respond to the former employer's enquiry?
If an employer has written to a member at the review stage and not received a response, they should check whether the Staffordshire Pension Fund has received a change of address notification. If, despite reminders, no response is received from the member, it is considered reasonable to stop payments until the position has been clarified.
What happens if the member finds work some time before the 18-month review and then fails to inform their previous employer?
Any payment made after the member has returned to gainful employment can be regarded as an overpayment and the former employer has powers to recover that overpayment. However, if the employer has to seek further information to be able to assess whether the employment is gainful employment as described in the regulations, they can consider stopping the pension until that further information is received.
Recovered overpayments are the gross amount paid to the member and should be returned without delay to the Pension Fund. The member will be able to reclaim any tax paid on these payments from HMRC. If the former employer considers that an overpayment has been made but then chooses not to seek recovery, or is unsuccessful in recovering the overpayment, this would result in the payment being an unauthorised payment (unless the payment was made in error and was for less than £250 gross). Further details on this are available from us.
Should the former employer tell the member when their tier 3 payments are stopped?
Yes, if tier 3 benefits are stopped the employer should tell the member, in writing, why and from what date. For example, if payments are stopped due to a return to paid employment, the employer should inform the member that the paid employment is 'gainful employment' as described in the regulations. The employer also needs to inform the Staffordshire Pension Fund to promptly stop the member's pension and the reasons why.
Stopping tier 3 pension payments Back to top
Why are payments stopped after 3 years?
This is consistent with the eligibility criteria where a member is judged capable of undertaking any gainful employment within three years. A tier 3 pension is a short-term benefit to provide financial assistance until such time as gainful employment can be, or is, found. It is not the intention that a member, whose medical condition requires payments beyond three years, should remain a tier 3 member and the employer has powers to consider an enhanced tier 2 pension at the tier 3 review.
Even after tier 3 payments have been stopped a further determination can be made under regulation 37(10) where the original medical condition justifies this, but this is limited to within three years of it ceasing.
Can tier 3 payments be stopped regardless of whether a review has been undertaken or not?
If payments continue until the review date, they cannot be stopped until an 18-month review is undertaken. It follows therefore, that although tier 3 payments stop after three years, if they are paid for the full period, they cannot be stopped at any point up to the three-year threshold without a review having taken place. The exception is where the member has obtained gainful employment.
Does the employer need to notify the Staffordshire Pension Fund when payments stop?
Yes, and promptly. The former employing authority should notify the Staffordshire Pension Fund without delay when tier 3 payments need to be stopped and also give the reason i.e. that gainful employment has been found, or after the review when the member is judged immediately capable of undertaking any gainful employment, or when the payments stop because they have been paid for three years.
Can the independent doctor who gave the medical assessment that resulted in a tier 3 award, undertake the second medical assessment at the 18-month review?
Yes. The same doctor can sign the ill health review certificate that gave opinion in the first determination, but the same doctor cannot sign the certificate indicating an uplift to tier 2 benefits. A pragmatic approach may be to employ a completely new doctor to undertake the tier 3 review.
Can a tier 3 member whose payments have stopped ask for pension payments to resume if the reason relates to the condition that resulted in the tier 3 award?
In certain circumstances yes, but there can be no future entitlement to tier 3 payments. If the condition that originally resulted in a tier 3 pension subsequently merits such an award, the member can apply for reconsideration of their ill-health and the employer will need to seek a further independent medical assessment. Where the medical condition justifies it, the employer can agree to an enhanced tier 2 retirement pension from the date of the assessment. Any further application must be made within 3 years of the original tier 3 benefit ceasing.
Would a lump sum be payable again if a further determination to a tier 2 pension is made?
No. The termination of employment on ill-health grounds and award of tier 3 benefits triggered a benefit crystallisation event with early release of retirement benefits and a lump sum payment. A member whose tier 3 benefits have stopped is classed as a pensioner member and, therefore, any future entitlement to ill-health retirement benefits in respect of the ill-health condition that resulted in tier 3 benefits, is likely to be a tier 2 award which has an enhancement of 25% of prospective membership to normal pension age. It is based on a 1/49th accrual rate with no option to commute pension for an additional lump sum.
Can a tier 3 member whose benefits have ceased ask for release of retirement benefits under regulation 38(4) of the 2014 Regulations for an unrelated condition?
Yes. A pensioner member whose tier 3 benefits have ceased and who has 'deferred' benefits is not precluded from applying under Regulation 38(4) as a result of a medical condition unrelated to the condition that resulted in a tier 3 award.
Can a tier 3 member be uplifted to the enhanced tier 2 with a condition other than that which resulted in the ill health retirement?
No. The regulations are quite clear that it is the initial condition resulting in an ill health tier 3 payment that should be considered when assessing a possible uplift to a tier 2 pension.
Can the employee return to a local authority or another LGPS employer?
A former member who has been awarded a tier 3 ill-health benefit is not expected to return to that employment, but they are not prevented from obtaining other employment with a local authority or LGPS employer.
Can a member receive their retirement benefits without retiring on ill-health grounds if they are over 55 but would have been a tier 3 member?
It is the employer who has to determine the reason for terminating employment. An employer may wish to consider not terminating the member's employment on ill-health grounds and, in this instance, where existing protections apply, permit the early release of unreduced retirement benefits.