Skip to content
clear

Ill-health retirement

A guide for LGPS Employers

This guidance is designed to help you understand the Local Government Pension Scheme regulations surrounding ill-health and your responsibilities to your employees and the Scheme.  It will take you through what you need to know and what you need to do.

The legislation in force at this time is the Local Government Pension Regulations 2013,  specifically to ill-health retirement – Regulations 35 to 39 

Useful links: 

Disclaimer: The information contained in this guidance is Peninsula Pensions interpretation of the current regulations. Changes to rules and regulations can happen at short notice and may be implemented prior to us being able to issue revised documentation. Readers should take their own legal and/or financial advice on the interpretation of any particular piece of legislation. No responsibility whatsoever will be assumed by Peninsula Pensions for any direct or consequential loss, financial or otherwise, damage or inconvenience, or any other obligation or liability incurred by readers relying on information contained in this guidance.

Peninsula Pensions – who we are and what do we do?

Peninsula Pensions is provided by Devon County Council and is a shared service with Somerset County Council. We administer the Local Government Pension Scheme, as one of 89 funds across England and Wales.

Peninsula Pensions has in excess of 400 participating employers throughout Devon and Somerset and a scheme membership of more than 100,000 members.

As well as looking after the administration needs of employers and scheme members of the LGPS we also administer the Police and Firefighters’ Pension Schemes for Avon & Somerset Constabulary and Gloucestershire Fire Service respectively.

Our Strategic Management Team, headed up by Daniel Harris, oversees the three core areas of the administration to ensure all employers and scheme members receive excellent customer service from our highly skilled pension administrators. Please visit our employer’s pages for individual contact details for each area of our Peninsula Pensions Team.

What you need to know

What is ill-health retirement?

Put simply, it’s when a member is granted access to their pension benefits because they are permanently incapable of carrying out the duties of their role because of ill-health or infirmity of mind or body.

Ill-health benefits can be paid to both active and ex-members with a deferred pension (deferred members) at any age and are not reduced on account of early payment. The member will need to have a medical assessment but if they satisfy the criteria, their benefits may be released early on ill health grounds.

The medical assessment is done by an Independent Registered Medical Practitioner (IRMP) or in other words a doctor qualified in Occupational Health.

Your role as an employer

Your main role as an employer will be to decide whether the member is eligible for ill-health benefits to be paid.

Scheme regulations state that ex-members must apply to their former employer who decides whether to award early payment.

Active members do not need to apply for benefits as it would usually be you or your occupational health advisers that would instigate the process. Once the process starts, it is you who makes the decision on pension entitlement.

If the member has been absent from work for a considerable period or has suffered an injury that prevents them from working, you should decide if the employment should be terminated – your decision that should be taken entirely for human resource reasons.

Ask yourself the question: ‘Is the employee capable of continuing to work?’

If the answer is no, then you will need to refer the member to your appointed Independent Registered Medical Practitioner (IRMP) who must certify that they meet the criteria for payment of ill-health benefits.

You can appoint your own IRMP as long as they are qualified in Occupational Health medicine but they must have been approved by Peninsula Pensions in order for us to accept the completed ill-health certificates.

If you are using a doctor who we have not approved, please email the Employer and Communications Team with their full name, General Medical Council (GMC) number, their practice or contact details, email and telephone number along with a copy of their OCH Qualification Certificate. We will then check their details and add to the approved list we hold internally.

The role of the Independent Registered Medical Practitioner

Under the LGPS Benefit Regulations, an IRMP is defined as:

An independent registered medical practitioner (IRMP) qualified in occupational health medicine means a practitioner who is registered with the General Medical Council and —
(a) holds a diploma in occupational health medicine (D Occ Med) or an equivalent qualification issued by a competent authority in an EEA state; and for the purposes of this definition, “competent authority” has the meaning given by section 55(1) of the Medical Act 1983; or
(b) is an Associate, a Member or a Fellow of the Faculty of Occupational Medicine or an equivalent institution of an EEA state.

The IRMP’s role is to certify whether in their opinion the member satisfies the relevant criteria under the specific set of regulations by completing the relevant ill health certificate. In addition, if the member is still an active employee and works part-time, they will need to provide an opinion on whether any reduction in hours is as a result of the condition for which ill-health retirements may be paid. This will have an impact on the calculation of any enhancement.

In order to comply with the Access to Medical Reports Act 1988, it is essential that the member gives their informed consent before any medical records are disclosed to the IRMP. It is suggested that you and your own Occupational Health provider obtains the member’s consent before they are referred to the IRMP.  

When the IRMP receives the referral papers they will decide whether they need to see the member and if so, an appointment will be arranged. The member will be informed by letter and copies sent to you. If the member fails to attend, you will be notified by letter. No further action will be taken until the member requests a new appointment.

For more guidance on IRMP’s, please visit the Faculty of Occupational Medicine – information for employers webpages. They have also published an employer’s guide to engaging an occupational health physician.

Benefits payable to the member

Active member – immediate ill-health retirement 

There are certain conditions required for a member to be entitled to immediate retirement on ill-health grounds:

  • Qualifying period – this means that a member must have at least two years’ scheme membership.
  • Permanent incapacity – this means that the employment must be terminated on the grounds that the members ill‐health or infirmity of mind or body renders them permanently incapable to carry out the duties of their current employment. ‘Permanently incapable’ means the member will most likely be unable to work until their normal pension age at the earliest.
  • Not immediately capable of undertaking any gainful employment – this means that the member is not capable of undertaking any gainful employment. ‘Gainful employment’ means paid employment for at least 30 hours per week for a period of at least 12 months.

If the member satisfies all the above, an ill-health pension is payable. If they have more than one contract of employment, each one needs to be treated separately and separate opinions must be made for each post. This is because the decision is based on their ability to carry out the duties of that employment.

Benefits payable

For active members, the level of pension and enhancement they receive depends on the severity of the illness and whether they will be able to work again in the future.

Tier Severity of illness Level of pension and enhancement
1 Member is unlikely to be capable of undertaking any gainful employment before normal retirement age Member receives accrued pension rights plus an enhancement of membership of 100% of prospective benefits up to normal retirement age.  Tier 1 is payable to the member for life.
2 Member is unlikely to be capable of undertaking any gainful employment within 3 years of leaving employment but likely to be capable before normal retirement age Member receives accrued pension rights plus an enhancement of membership of 25% of prospective benefits up to normal retirement age.  Tier 2 is payable to the member for life.
3 Member is likely to be capable of undertaking gainful employment within 3 years of leaving employment or normal retirement age if sooner Member receives accrued pension rights only with no enhancement. Tier 3 benefits are payable for a maximum of 3 years with a review after 18 months.

 

If you determine that a scheme member is entitled to a Tier 3 ill-health benefit, you will be responsible for reviewing the pension during the period of payment.  You will need to provide some additional information to the member on leaving which is outlined on page 14 of this guide.

Deferred Member – Early Payment of Deferred Benefits  

An ex-member can apply for early payment of their deferred benefits at any age, without reduction if, because of ill-health or infirmity of mind or body, they would be permanently incapable of the job they were doing when they left the LGPS. They must apply to their former employer who decides whether to award early payment.

Before you make your decision, you must obtain the relevant ill-health certificate from an Independent Registered Medical Practitioner (IRMP) as to whether the member is suffering from a condition that renders them:

a) permanently incapable of discharging efficiently the duties of the employment the member was engaged in because of ill-health or infirmity of mind or body; and, if so,

b) whether as a result of that condition the member is unlikely to be capable of undertaking gainful employment before reaching normal pension age, or for at least three years, whichever is the sooner.

The IRMP will review the duties of their previous employment and consider whether their current health conditions would prevent them from being able to carry out their duties in full.

If the opinion is that early payment should be granted under these grounds, the ex-member will receive payment of their deferred benefits, without reduction. The date the benefits are payable from for a deferred member depends on when they ceased their employment because there are different sets of regulations that apply based on the date of leaving.

Costs and Tax implications

Costs to employer

Unlike other forms of early retirement (such as redundancy) there is no strain cost payable by an employer for any ill-health retirement. All pension costs associated with ill health are included in the normal employer contribution rate determined by the actuary every three years.

An employer will however have to pay the cost of any medical referral. A deferred member can apply for early payment of benefits on ill-health grounds as many times as they wish. You need to make a decision on each request, which you can only do after obtaining the IRMP certificate so you could face multiple referral costs which must not be passed on to the member.

Tax implications

HM Revenue and Customs impose controls on the amount of pension savings a member can make without having to pay extra tax. One of these controls is known as the Annual Allowance and is in addition to any income tax a member pays on their pension once it is in payment.

The Annual Allowance (AA) is the amount by which the value of pension benefits may increase in any one year without having to pay a tax charge. If the value of a member’s pension savings in any one year (including pension savings outside of the LGPS) are in excess of the annual allowance limit, the excess will be taxed as income.

Because ill-health retirement has the potential of providing enhanced benefits, members who are awarded ill-health retirement may be subject to tax charges. HM Revenue and Customs provide protection against the tax charges but only if the member is unlikely to be capable of taking on any other paid work in any capacity.

If the IRMP certifies this on the ill-health certificate, any enhancement awarded to the member is ignored for tax purposes. However, if they state that the member does not meet the severe ill-health test, this could result in an annual allowance tax charge. We ask that you make the member aware of this potential charge.

If box B13 of the Ill Health Certificate IHCURR1 is ticked, then we recommend that you request that we calculate the estimate so we can also do an AA check. We can then let you know if there is a potential annual allowance tax charge for you to then inform the member.

The member’s right to appeal - Internal Dispute Resolution Procedure (IDRP)

In all cases the employee should be given the right to appeal under the Internal Dispute Resolution Procedure (IDRP) which is a two-stage process.

The pension appeal can relate to the decision to grant retirement and/or the benefits paid.

It is important to note the following:

  • An IDRP appeal can only be made after the employment has ceased, for example, against a decision to award or not award ill health retirement benefits, or against the amount of those benefits.
  • It is you as the scheme employer, not the IRMP, that the appeal is made against as it is your responsibility to decide if and what level of benefits to award. The IRMP is only there to give a medical opinion and recommendation. Please refer to the IDRP Section of the Employers Guide for more guidance.

What can go wrong?

The Pensions Ombudsman has published a newsletter to highlight some of the reasons why cases are referred to them.

The newsletter provides some generic guidance on how the Service may consider an ill-health complaint and makes some suggestions for you to consider when making your decisions in order to avoid a potential appeal. Please refer to the LGPS Ill Health Newsletter for the full guidance.

What you need to do

You will need to decide whether the employee needs to be considered for ill-health retirement or if the deferred member fits the criteria and seek a medical opinion by referring the case to your appointed Independent Registered Medical Practitioner (IRMP).

Referral to IRMP

You can refer current and ex‐members to the IRMP for medical opinions under the Scheme.

It is likely that members who have been absent for a long time due to illness will have already been in contact with your own occupational health provider as part of your managing absence policy.

However, a long period of sickness is not required before a member can be referred. For example, an employee may not have been off sick, but has been diagnosed with a terminal illness.

Your occupational health provider should ensure all relevant information is available for the independent Doctor.

Information to provide to the IRMP

In order to ensure that the application is dealt with quickly and with the minimum disruption the independent doctor will need a fully worked case to review.

Information to be provided should include:

  • the relevant ill-health certificate to the IRMP for completion
  • details of the member’s illness or medical condition
  • their absence record for the previous two years (if active member)
  • medical reports from your occupational health provider
  • medical reports from the member’s GP or specialist consultant
  • accident report forms and risk assessments, if applicable
  • the member’s current job description or details of the previous employment if a deferred member
  • details of any adjustments or adaptations that have been made to help the member undertake their job. This includes adjustments to hours worked which can affect the level of ill-health enhancement awarded.

In practice, sending the entire occupational health record is the best way to ensure all relevant information is passed on.

Once the IRMP has made their recommendation, the ill-health certificate will be completed and returned to you.

You should then read the certificate confirming the IRMP’s recommendation along with any additional information you may have.

Once confident, you will need to decide whether to award ill-health pension benefits and if an active which tier of ill-health award the member is entitled to.

What to do once you have made your decision

When you have made your decision, you must inform the member in writing setting out which tier of benefits they are entitled to and their right of appeal under the Internal Dispute Resolution Procedure (IDRP).

There are no tiers for early payment of preserved benefits, so your letter will need to confirm early payment has been awarded and the date the benefits will be payable from.

If the member is awarded Tier 3 ill-health benefits, they will receive benefits for a maximum period of 3 years with a review at 18 months. We suggest that your letter sets out the process as outlined on page 14 of this guide.

You will also need to notify us that we need to pay some benefits to the member or ex-member and this can be done as follows:

  • For active members, you will need to submit the Leaver form via Employer Self Service (ESS) along with the ill health certificate completed by the IRMP and the employer’s decision notice. Please see the Employer Self Service (ESS) Guide for help with submission of the Leavers form.
  • For ex-members, we do not require another leaver form, so you just need to send us the relevant ill-health certificate completed by the IRMP and the employer’s decision notice.

Ill health Process

The process – step by step

Step 1

  • Employer decides an active member is no longer able to carry out the duties of their post and the employment should be terminated, or
  • An ex-employee applies to have their pension paid early due to a permanent breakdown in health.

Step 2

Employer refers the member to their Independent Registered Medical Practitioner (IRMP) to review case and asks them to complete relevant ill-health certificate:

  • Active member IHCURR1
  • Ex-member IHDB1A / IHDB1B / IHDB1C / IHBD1D

Step 3

IRMP completes the certificate and returns it to the employer.

Step 4

Employer reviews the certificate from IRMP along with any other information available and decides whether ill-health benefits can be awarded. If an active member decides what tier of ill health applies.

If benefits are being released

  • Employer informs employee of decision in writing, and that Peninsula Pensions will be in touch regarding payment, enclosing our Your Retirement Process leaflet for members.
  • Submit Leaver’s Form via Employer Self Service (ESS) along with completed ill health certificates and the relevant employer decision notice:
    • Active member – IHCURR1
    • Ex-member – IHDB1A / IHDB1B / IHDB1C / IHBD1D and IHBD2

If benefits are not being released

Employer informs employee of decision and provides information on their right of appeal under IDPR.

You can download the Ill Health Retirement Process Flowchart here.

Ill-health certificates

Please check the lists below for which certificate is relevant for your case.

Ill-health certificate – active member

Please remember to submit the Leaver Form with the certificates for a current member

Certificate name Certificate number
Ill Health Certificate – Current Member IHCURR1
Ill Health – Employer’s Decision Notice IHCURR2

IHCURR1 and IHCURR2 are also available within Employer Self Service

Ill-health certificate – early payment of deferred benefit

Certificate name Certificate number
Employee left on or after 1st April 2014 IHDB1D
Employee left on or after 1st April 2008 and before 1st April 2014 IHDB1A
Employee left on or after 1st April 1998 and before 1st April 2008 IHDB1B
Employee left before 1st April 1998 IHDB1C
Ill Health Employer Decision – Early Payment of Deferred Benefit IHDB2

Tier 3 ill-health benefits

If you determine that a scheme member is entitled to a Tier 3 ill-health benefit, you will be responsible for reviewing the pension during the period of payment.

Although we send you a letter leading up to the review date, this should be considered as a reminder only so we recommend that you keep a log of action dates so that you deal with the review in good time.

You need to provide the following information to the member, in writing, on leaving:
The latest date the pension will cease in 3 years’ time.
If still in payment the pension will be reviewed after 18 months.
The member must notify you if they obtain gainful employment as the pension will cease.

Gainful employment means paid employment for at least 30 hours per week for at least a year

Once the pension is in payment, you must:

  • review the medical condition of the member after 18 months on pension, by referring them to the IRMP for re-assessment
  • notify Peninsula Pensions whether the third-tier conditions still apply or whether the pension should cease or be upgraded to Tier 2
  • notify us at any time when the pension must cease
  • inform the member in writing when the pension is ceasing
  • instruct us to recover any overpayment of pension
  • inform us if the member has been re-assessed to a Tier 2 ill-health pension and provide a copy of the IRMP medical certificate

We will do the following to help you achieve the above:

  • inform you when the member has been on pension for nearly 18 months and confirm the member’s current home address held on the payroll record
  • inform you when the member has been on pension for nearly 36 months and confirm the member’s current home address held on the payroll record. This letter will confirm that we will stop paying the pension at 36 months
  • recover any overpayment as instructed by you

When payment of a Tier 3 ill-health pension is ceased the member becomes a “deferred pensioner member”.  That ‘suspended’ pension is payable from the member’s Normal Pension Age unless:

a) the member elects to defer payment to a date before their 75th birthday; or

b) the member elects for payment between age 55 and their normal pension age – benefits are actuarially reduced for early payment); or

c) within 3 years of the Tier 3 ill-health pension ceasing, you decide to move the member to Tier 2; or

d) the member has re-applied and is unlikely to be capable of undertaking gainful employment before their Normal Pension Age (the ‘suspended’ pension is brought back into payment at an unenhanced rate).

For c) and d), you will need obtain a further certificate from an Independent Registered Medical Practitioner and be satisfied that as a result of ill health or infirmity of mind or body, the member is permanently incapable of discharging efficiently the duties of the employment they held with you and is either:

  • unlikely to be capable of undertaking gainful employment before their normal pension age, or
  • unlikely to be capable of undertaking any gainful employment within 3 years of leaving employment but likely to be capable before normal retirement age

Please note that you can use the same Independent Registered Medical Practitioner who provided the certificate for the initial Tier 3 ill-health retirement.

The forms you will need to complete:

Ill-health reviews Form
Third Tier Ill-Health Retirement – 18 months’ review (ceased employment before 1st April 2014) IH3RW1A 
Third Tier Ill-Health Retirement – 18 months’ review (ceased employment after 31st March 2014) IH3RW1B 
Third Tier Ill-Health Retirement – employer’s review decision IH3RW2

 

Suspended Tier 3 Ill-Health Pensions Form
Review whilst pension in payment or within 3 years after payments stopped (ceased employment after 31st March 2014) IH3SUS1
Review taking place 3 or more years after payments stopped (ceased employment after 31st March 2014) IH3SUS2
Review taking place within 3 years after payments stopped (ceased employment before 1st April 2014) IH3SUS3
Review taking place 3 or more years after payments stopped (ceased employment before 1st April 2014) IH3SUS4

We are here to help you

For more detailed guidance on the LGPS and the procedures you need to follow please take a look at our Employer’s guide.

We also have a dedicated team that will work with you to ensure the best possible service for all your LGPS staff, by providing guidance and support for you. Our Employer and Communications Officer, Mark Griffin, can arrange training to help you understand your responsibilities as an employer within the LGPS and what you need to do.

Please contact the Team direct by email at peninsulaemployers@devon.gov.uk to find out how they can help. Alternatively, please call us on 01392 383000 and ask for the person by name.

Peninsula Pensions Employer and Communications Team

  • Shirley Cuthbert – Employer and Communications Manager
  • Emma Davies – Senior Employer and Communications Officer
  • Mark Griffin – Employer and Communications Officer
  • Beverly McCarthy – Employer and Communications Pensions Assistant
  • Molly Milkins – Employer and Communications Pensions Assistant

Supported by