RP case studies: Ill-health early retirement

Jenna Towler
clock • 4 min read

Jessica List looks at an ill-health retirement case study where a SIPP comes in handy...

The Situation

Julia is 51. She has suffered from osteoarthritis since her early 40s, which has gradually been making it harder for her to continue running her boutique clothing store. Julia has been maximising her pension contributions to her SIPP over the last few years, intending to retire at 55 when she reaches the current normal minimum pension age. However, over the last few months, her condition has suddenly taken a turn for the worse.

Her daughter and her small team at the store have been helping as much as possible, but Julia has reached the stage where she doesn’t feel able to continue working.

Julia will hire additional staff and step back from the day-to-day running and management of the store while she seeks a buyer for her business. Knowing it could be a while before she finds a suitable buyer, Julia wonders if she’ll be able to access her pension in the meantime, despite not yet being 55. She has heard of people accessing their pensions early before, but only when they’ve been terminally ill.

Julia calls her SIPP provider and speaks to Leon. He confirms that there are two different provisions that allow people to access pensions early due to their health: the ill-health rules, and the serious ill-health rules.

Leon first explains that the serious ill-health rules are the ones Julia had heard of. If a medical professional has confirmed that someone is expected to live for less than a year, they are able to take all of the uncrystallised money from their pension in a single payment, called a serious ill-health lump sum. Serious ill-health lump sums can be taken at any age and are subject to different tax rules from normal pension payments.

Thankfully Julia does not meet the conditions for a serious ill-health lump sum; in any case, she would not have wanted to exhaust all of the funds from her pension.

Leon goes on to explain that the ill-health provisions apply when someone is unable to continue working because of their health. The person in question can then have access to all normal pension benefit options, subject to all of the normal rules and restrictions, but without needing to have reached normal minimum pension age first.

This is exactly what Julia had been looking for, so she asks Leon to explain the requirements in a little more detail. Leon confirms that Julia would need to provide confirmation from a medical professional that she is unable to continue with her current occupation due to her health.

Leon warns Julia that if she has pensions with other providers she will need to check their requirements too, as some have stricter requirements than the legislation. They may instead need Julia to show that she is unable to continue with any form of work, rather than just her own occupation, before paying benefits on ill-health grounds.

He says that this tends to be more common in pensions where it would be difficult to stop the pension payments once they have begun. However, in a SIPP, if Julia went into drawdown or took uncrystallised funds pension lump sums (UFPLS), she could easily stop the payments at any time if she was able to begin a different kind of work in the future.

This sounds perfect for Julia. While she doesn’t necessarily expect to return to work, she has not yet spoken to an adviser about how to use the money she expects to receive eventually from selling her business. She suspects that when that time comes, her pension won’t be her first choice as a source of income for a little while.

The Results

Julia hires the additional staff to run and manage her store and commits to finding a suitable buyer as soon as she can.

She arranges an appointment with her doctor, who provides a letter confirming her opinion that Julia is not able to continue working. Julia sends the letter to her SIPP provider and is able to proceed with crystallising a small portion of her pension early on ill-health grounds.

This case study is part of the second series of Meet the Joneses case studies from Curtis Banks.

Jessica List is pension technical manager at Curtis Banks

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