Understanding the ill health retirement process

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What is ill health retirement?

  • Important protection
  • Three tiers of protection (actives)
  • One tier protection (deferred)
  • Strict eligibility criteria 
  • You make the decision

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Your responsibilities (for your current employees)

  • The employer to instigate an ill-health retirement process for their active employees
  • •The employer must consider the following questions separately for each pensionable employment and make a decision:
    • Decision 1 - is employee fit to continue in current employment?
    • Decision 2 - are they eligible?
    • Decision 3 - what tier?
  • Your decision must be made based on  the opinion of the Independent Registered Medical Practitioner (IRMP)
  • Ultimately the employer's decision

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Decision 1 - fit to continue in current employment?

  • Make this decision after receiving advice from your Occupational Health advisor
  • Examples: 
    • Temporary illness that is taking several months to treat
    • Potentially permanent condition for which normal medical treatment regimes have not yet been exhausted
    • Permanent condition where treatment has now finished

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Decision 2 - are they eligible?

To be entitled to an ill health pension the employee must: 

  • be below normal pension age
  • be dismissed on grounds of ill health
  • have at least two years qualifying service (not just two years in current employment, they may have other qualifying service)
  • be permanently incapable of discharging efficiently, the duties of their current employment
  • not be immediately capable of undertaking gainful employment
  • have been certified by the Independent Registered Medical Practitioner as meeting the ill health pension criteria

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What does permanently incapable mean?

  • The member will, more likely than not, be incapable to do the current job efficiently until, at the earliest, his/her Normal Pension Age. 
    • Please note: ‘normal pension age’ is now linked to the individual member’s State Pension Age.
  • “More likely than not” is key
    • Probability Test - If a member would, on the balance of probabilities, recover sufficiently to be capable of undertaking their current/former employment before their normal pension age they cannot be said to be permanently incapable

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What is gainful employment?

  • Any paid employment 30 hours a week minimum of 12 months
  • not comparable to the current employment
  • A permanent variable hours contract only becomes gainful employment when a pattern of 30 hours has been established

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Independent medical practitioner (IRMP)

  • Independent Registered Medical Practitioner
    • As the name implies – must be independent
    • Must be qualified in occupational health medicine
  • Approved by the Administering Authority
  • IRMP not being asked to confirm ill health dismissal, but to give a medical opinion on the case
  • IRMP considers medical factors only not factors like the availability of gainful employment in a particular area 

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Decision 3 - what tier?

  • What level of benefits to award them
  • The Independent Registered Medical Practitioner (IRMP) will indicate their medical opinion as to which tier of benefits is appropriate.
  • Your decision not the practitioners
  • This is an important decision as it will determine: 
    • Applicable enhancements
    • Permanent or temporary

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Ill health tiers

Tier 1

Criteria - Member is incapable of undertaking any gainful employment before NPA

Benefit - Enhancement based on 100% of the further annual pension that would have been achieved between leaving and NPA

Payment period - Permanent

Tier 2

Criteria - Member is incapable of undertaking any gainful employment for at least 3 years but it is likely they will be capable of doing so before NPA

Benefit - Enhancement based on 25% of the further annual pension that would have been achieved between leaving and NPA

Payment period - Permanent

Tier 3

Criteria - It is likely that the member will be capable of undertaking gainful employment within 3 years

Benefit - No enhancement - based on actual pension built up

Payment period - Maximum 3 years but will cease if member obtains gainful employment, subject to 18 month review

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Employment vs pension issues

Two seperate processes that come together towards the end

  • Are you going to continue to employ this person?
  • Are they eligible for an ill health pension?

For success, you have to manage the employees expectations.

No promises.

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Employers must determine

Employers must determine: 

  • Is the employee eligible e.g. below Normal Pension Age, have 2 years qualifying pensionable service
  • Does the member hold a deferred pension
  • Does the IRMP consider the member’s condition make them permanently incapable (to normal retirement age) of their current role
  • Does the IRMP consider the member have a reduced likelihood of undertaking any gainful employment before normal retirement age 

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IRMPs and certification

  • Must declare that they have not previously: 
    • Advised on the case
    • Given an opinion on the case
    • Been involved in the case
  • Must state that they have not acted as the representative of: 
    • The employee
    • The employer
    • Any other party in relation to the case
  • Statements included on medical certificate

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Ill health process

  • Generally three stages for current employees: 
    • Stage 1 - Employer monitors sickness absence under policy and in conjunction with Occupational Health provider
    • Stage 2 - Health assessment - Employer makes referral to IRMP for medical opinion and certificate
    • Stage 3 - Dismissal - Employer decides level of ill health retirement (or not) and terminates employment

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Stage 1 - sickness absence

  • Ensure medical process commence before termination of employment on ill health
  • Monitor and manage sickness absence in accordance with policy and occupational health
  • Make adjustments to existing job
  • Consider re-deployment, part time work, career break, retraining
  • Comply with the Disability Discrimination Act
  • Don't raise member's expectations

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Stage 2 - IRMP assessment

  • Employer to provide the IRMP with: 
    • The job description
    • Member's sickness record
    • OHU report
    • Ill health template form

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Employer decision

  • Employer determines
    • Whether ill health is met or not
    • Tier of benefit awarded - 1,2 or 3
  • Remember to obtain signed medical certificate where the IRMP indicates not permanent ill health and notify fund

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Stage 3 - dismissal

Inform the employee of your decision and agree a dismissal date. Provide member with right of appeal

Ill health retirement criteria is met

  • HR dismiss employee and inform Pensions of ill health retirement

Ill health retirement is not met

  • HR dismiss employee - inform member of reason for refusal
  • Pensions calculate deferred benefit

Ill health benefits cannot be awarded if the member resigns. 

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Retirement process

Employment sends relevant forms and certificates to Pensions

  • Leaver form
    • Reason for leaving - ill health and tier and support
    • CARE pay
    • Final pay
  • Copy of dismissal letter
  • Completed and signed ill health certificate

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Tier 3 review - employer role

Pensions Team provide member with options and forms

  • Details of pension options
  • Lifetime allowance form
  • Bank details form
  • Expression of wish form
  • Request copies of birth certificates etc. 

On receipt of the members completed forms, the Pensions Team will arrange payment of benefits. 

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Tier 3 - 18 month review - Employer role

  • Tier 3 pensioner MUST notify employer when gainful employment obtained
  • Must provide details of pay and working hours
  • Employer decides whether employment is gainful
  • If it is – inform Pensions of the date to stop payments
  • If overpayment (gross amount) is recovered – pay over to Pension Fund asap
  • Short term contracts (less than 12 months) do not constitute gainful employment
  • Open ended contract for 30 hours or more per week = gainful employment

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Uplift to tier 2 - employer decision

  • Employer must conduct a review after 18 months
  • If the member is in gainful employment - stop the payment  can recover any overpayment  (employers discretion)
    • Notify Pensions using the 18 month review decision certificate 
  • If the member is not in gainful employment - obtain a further certificate from an IRMP
    • Can be the original IRMP 
  • The IRMP certifies as to the member’s capability of undertaking gainful employment in the future – following which the employer:
    • Stops the payment immediately if capable of gainful employment
    • Continues the payment but stops when benefits paid for 3 years
    • Uplifts to tier 2 (never tier 1)
  • At anytime up to review (but most likely following Tier 3 review) or at any stage up to 3 years after Tier 3 pension stopped
  • Must relate to condition that resulted in Tier 3 pension
  • IRMP certifies that:
    • Member no longer capable of undertaking gainful employment within 3 years of date of leaving
  • Uplift paid from date of review 25% of enhancement calculated from date of leaving

NB no option to commute additional pension for a cash lump sum

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Ill health requests: deferred members

  • You may receive requests for deferred pensions to be paid on ill health from:
    • Former employees
    • Active employees who have opted out of the scheme
    • Employees who are current members but also have a deferred pension
  • Your decision to award
  • Only receive unenhanced benefits

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Ill health requests: deferred members employer role

  • Receives application from former employee for early release of pension
  • Refers the former employee to an independent registered medical practitioner (IRMP)
  • Obtains the IRMP medical opinion and certificate
  • Decides whether to release deferred members benefit on ill health grounds and informs former employee of this decision
  • Notifies Staffordshire Pension Fund of its decision
  • Provides Staffordshire Pension Fund with the medical certificate

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Deferred members relevant dates for payment of ill health benefits

  • Leaving date before 01/04/1998 – date the IRMP certificate met the permanency criteria
  • Leaving date between 01/04/1998 and 31/03/2008 – date the member made their application
  • Leaving date on or after 01/04/2008 and before 01/04/2014 – date the IRMP certifies the member met the permanency criteria
  • Leaving date after 31/03/2014 – this is the date the employer determines the ill health benefits should be released

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Death in service vs ill health

  • In cases of terminal illness - speeding up the process is crucial
  • In most cases ill-health retirement provides the better overall 'financial package'
  • Pensions will provide comparison estimates in these sensitive cases
  • Fast track the case via OHU provider
  • Death before employment is terminated results in death in service benefits

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Internal dispute resolution procedure (IDRP)

  • Any decision made regarding ill health can be appealed by the member including: 
    • entitlement to an ill health benefit
    • failure to make a decision
    • disagreement about the tier of benefit
    • the certification process
    • suspension of tier 3 pension
  • IRMPs do not make the decision

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  • Ensure your sickness absence procedure is followed
  • Ensure timely referral to IRMP
  • Ensure all up to date medical evidence is provided to the IRMP
  • Monitor certification process and ensure the IRMP signs it
  • Decide whether the case is an ill health retirement or not
  • Decide which level of ill health benefit to award and sign the certificate
  • Where there is no ill health benefit awarded - ensure member is notified of reason

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Downloadable version

A copy of this information is available in a downloadable version below.