Section 19 - Guidance for ill-health retirement

Put simply, an ill-health retirement, under the LGPS provides a pension to members who satisfy the relevant criteria and are incapable of carrying out the duties of their current role/job.

Conditions required for immediate retirement on ill-health grounds:

1. Employment terminated - the member’s employment must be terminated by the employer on the grounds of ill-health or infirmity of mind or body.
2. Qualifying period - a member must have at least two years qualifying service as defined under Regulation 3 (7) of the Local Government Pension Scheme Regulations 2013.
3. Under Normal Pension Age (NPA) - at the date of termination the member must be under their NPA in the 2014 Scheme (State Pension Age (SPA), minimum age 65).
4. Permanent incapacity - the member’s ill‐health or infirmity of mind or body renders him or her permanently incapable of discharging efficiently the duties of his or her current employment. ‘Permanently incapable’ means the member will, more likely than not, be incapable until their NPA (their SPA) at the earliest.
5. Not immediately capable of undertaking any gainful employment - the member must not immediately be capable of undertaking any gainful employment. ‘Gainful employment’ means paid employment for not less than 30 hours in each week for a period of not less than 12 months.

If the member satisfies the criteria in points 1 to 3 and then either points 4 or 5, then an ill-health pension may be payable.

The test for permanent incapacity is based on the member’s ability to undertake the duties of their current employment. If the member has more than one contract of employment, separate opinions must be made for each post where ill-health retirement is being considered. It is quite possible for a member, in more than one post, to satisfy the ill-health criteria for one, but not the other.

(a) Decisions about eligibility

The Scheme Regulations do not require an active member to apply for ill-health benefits. It would usually be you, the employer that would instigate the process for an active member, usually as part of your sickness management process.

However, once the process starts, it is YOU, the employer, who has the responsibility for reaching a decision on pension entitlement.

If a member has been absent from work for a considerable period due to poor health or has suffered an injury that prevents them from working, then you should decide if the member should be considered for ill-health retirement. This is a decision that should be taken with assistance from your human resources team and the question should be asked: ‘Is the member capable of continuing to work?’

If the answer is no, then the member should be referred to your independent registered medical practitioner (IRMP). An IRMP who is qualified in Occupational Health medicine, has to certify whether or not a member meets the Scheme criteria.

(b) Referral to the IRMP

Extract from LGPS Benefit Regulations for definition of an IRMP:

‘An independent registered medical practitioner (IRMP) qualified in occupational health medicine means a practitioner who is registered with the General Medical Council and —

1. 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
2. is an Associate, a Member or a Fellow of the Faculty of Occupational Medicine or an equivalent institution of an EEA state.’

It is likely that members who have had long periods of absence due to illness, have already been in contact with your own occupational health advisers for periodic review aimed primarily at helping the member return to his/her normal job, or to identify suitable alternative work. However, a long period of sickness is not required before a member should be referred. For example, a member may not have been off sick, but has been diagnosed with a terminal illness.

(c) Information to provide to your OHS

In order to ensure that the ill-health retirement application is dealt with quickly, and in accordance with the LGPS Regulations, the OHS must appoint someone to the case who has not dealt with the member previously, in any capacity. The independent doctor at the OHS, requires full details of the case to review. These should include:

• An ill-health declaration form for completion and return (see below);
• Details of the member’s illness/medical condition and absence record for the previous two years;
• Medical reports from previous referrals to your occupational health practitioner;
• Medical reports from the individual’s GP or specialist consultant or similar;
• Any accident report forms and risk assessments;
• The member’s current job description; and
• Details of any adjustments/adaptations that have been made for the member to help them undertake their job. This includes adjustments to the hours worked which can affect the level of ill-health enhancement awarded.

In practice, sending as much information as possible to the OHS is the best way to ensure they have all of the relevant information.

Ill-health declaration form - you will need to partially complete and send the form to your OHS, who will then make their determination using the form. OHS will complete it return to you together with their report.

The IRMP has to certify whether or not, in his/her opinion, the member satisfies the relevant criteria under the specific set of Regulations by completing the ill-health declaration form.

In addition, if the member is currently working part time due to an illness, it may also be necessary for the IRMP to provide an opinion stating whether or not 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 individual gives their informed consent before any medical records are disclosed to the IRMP. The IRMP will normally request the employee complete and return a consent form before the IRMP approaches the employee’s doctor or specialists for their reports.

When the IRMP receives the referral papers they will decide whether or not it is necessary to see the member. An appointment, where appropriate, will be arranged. The member will be informed by letter and copies sent to you, the referring employer. If the member fails to attend, you should be notified by letter. No further action can be taken until the member attends an appointment; you may need to contact the member to remind them of the process.

Once the OHS-IRMP has made their medical opinion, the certificate will be completed and returned to you, together with a copy of their report. When you receive the certificate and report, you should make arrangements for your decision-making body, such as an Ill-health Review Panel (IHRP), to meet and discuss the case, along with any other information available.

The IHRP will then make a decision as to whether to obtain a second opinion from another Occupational Health Adviser who has not already been involved with the case, or whether to award pension entitlement, including which tier of ill-health award the member is entitled. Or it may be decided not to award pension benefits, in which case the member may be dismissed or subject to further sickness processes – your HR department will be able to advise.

When the decision has been made, you will need to complete a leaver form and send it to Southwark Pension Services with the relevant ill-health declaration form and report.

Your HR department will need to inform the member of the reasons for the decision, in writing, setting out to which tier of benefits they are entitled (if any) and their right of appeal under the IDRP.

If the member is awarded Tier 3 ill-health benefits, they will receive benefits for a maximum period of three years, and it is subject to a review at 18 months after being in payment. At which point it may be decided to continue payment to a maximum of three years, cease payment or uplift to a Tier 2. Your HR department will need to ensure the member is made aware of these conditions in the letter.

The level of pension and enhancement under the Scheme is dependent on the extent and expectation of the member being able to undertake further gainful employment. As such there are varying degrees, or tiers, of ill-health award and the level of pension benefits is associated with different tiers:

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

If the member is awarded Tier 3 ill-health benefits, they will receive benefits for a maximum period of three years, and it is subject to a review at 18 months after being in payment. It is you the employer, not Southwark Pension Services or the Fund, who is responsible for reviewing the member’s status at 18 months, and to decide whether pension payments are to continue for the remaining 18 months or to cease.

Your HR department must ensure that the following information is given to the member, in writing, when they leave your employment on ill-health retirement:

• The member must inform their employer if they obtain gainful employment (30 hours or more per week for a period of not less than 12 months), as the pension will cease;
• If still in payment, the pension will be reviewed after 18 months; and
• The latest date the pension will cease will be in three years’ time (unless the member attains Normal Pension Age (NPA) on or before that date, or the member has been re-assessed to a Tier 2 pension).

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 OHS-IRMP for re-assessment;
• Review the medical condition of the member when requested, by referring them to the OHS-IRMP for re-assessment; and
• Review the medical condition of the member after three years of paying their pension, by referring them to the OHS-IRMP for re-assessment.

After the assessment, you must inform Southwark Pension Services whether the Tier 3 conditions still apply, or whether the pension should cease or be upgraded to Tier 2.

• If the member has been re-assessed to a Tier 2 ill-health pension, a copy of the OHS-IRMP medical certificate will be required;
• Inform Southwark Pension Services, at any time, when the pension must cease, for example, on the member obtaining gainful employment or medical re-assessment;
• Inform the member in writing when the pension is ceasing; and
• Inform Southwark Pension Services if they need to recover an overpayment of pension.

Under the Regulations, there are protections in place for members where there is entitlement to enhanced ill-health retirement benefits i.e. Tier 1 or Tier 2 award, provided that the member was both:

• An active member in the LGPS on 31 March 2008; and
• Aged 45 or over before or on 31 March 2008.

This protection means that the member should be in no worse a position than they would have been, had the member been awarded benefits under the pre-April 2008 Regulations. Therefore, Southwark Pension Services will need to establish ill-health retirement entitlements under both the pre-April 2008 Regulations and post-April 2008 Regulations, and award the greater of the benefits.

If a member is purchasing added years under the old 1997 Regulations, then for their added years to be treated as secured in full, they will need to satisfy the ill-health conditions under the 1997 Regulations.

It is possible for a member to satisfy the old ill-health conditions but not the new conditions and vice versa, which could mean that their added years are deemed as secured in full, but they are not entitled to an ill-health benefit or they are entitled to an ill-health benefit but their added years are not treated as secured in full and will be apportioned based on contributions actually paid as a proportion of contributions actually due.

From April 2014, the Annual Allowance (AA) for tax‐relieved pension savings reduced to £40,000.

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, otherwise than to an insignificant extent before State Pension Age.

If this is the case and the doctor certifies this on the ill-health declaration form, any enhancement awarded to the member is ignored for tax purposes.

In all cases, the member has the right to appeal their employer’s decision not to award pension benefits on the grounds of ill-health, or to appeal the level of benefits they have been awarded. This can be done under the IDRP, which has two stages.

It is important to note the following:

• An IDRP appeal can only be made within six months of the employer’s determination and can only be made against a decision to award, or not award, ill-health retirement benefits, or against the level of benefits awarded. This process cannot be used by the member to appeal against the employer’s decision to dismiss them, they must follow the employer’s process to appeal against dismissal; and
• It is you the employer, and not the OHS-IRMP, that the appeal is made against, as it is the responsibility of the employer to decide, if and what benefits to award. The IRMP is only provides a medical opinion.

Read Section 22 - Guidance for dealing with appeals - IDRP for more.

Unlike other forms of early retirement (such as redundancy), there is no immediate capital cost (also known as strain cost) payable by you the employer. All pension costs associated with ill-health are included in the normal employer contribution rate determined by the actuary every three years. You may however have to pay the cost of any medical referral.

You may be asked by a former member if you'll pay their deferred benefits, before normal pension age, because of ill-health. The same rules also apply to an active member who has opted out of the scheme or holds deferred pension benefits.

Unlike for active members, there are no enhancements available. This means you don’t need to decide which tier of benefits apply. You can only award payment of deferred benefits.

If a member has more than one deferred benefit, they need to be dealt with separately.

Getting the opinion of an independent registered medical practitioner (IRMP)

To decide if ill-health benefits should be awarded, you must get the opinion of an IRMP. The IRMP must be registered with the General Medical Council and have a qualification in occupational health.

The IRMP will base their opinion on the medical information given to them by the member’s treating professional. The member will give this information to you, to make sure you get as information much as possible.

When preparing the referral to the IRMP, you should make sure you:

• Have explained the ill-health process and passed on the member guide;
• Have collected all relevant medical information and had consent to pass it on;
• Are clear about the duties of the former job in the referral information; and
• Provide a certificate.

When sending the IRMP a certificate to complete, make sure you send the right one. There are different certificates depending on when the member left the scheme.

Ill-health certificates are available on the LGA website

Ask the IRMP for a narrative report. This will describe how they've reached their opinion and this will help when you make your decision.

Making the final decision

You should consider the opinion of the IRMP, but you must make your own decision. It's important you're able to give reasons for your decision.

If you decide the member doesn't meet the ill-health rules, their benefits will stay deferred.

The notice letter

You must let the member know if you're awarding benefits or not. In either case, you should tell the member:

• Your decision;
• How you reached the decision;
• How the employee meets or doesn't meet the rules under the regulations;
• How you have referred to the IRMPs opinion; and
• Information on how the member can appeal the decision. This should include the timescales of appeal and contact information.

Which regulations apply?

Different rules apply depending on when the former member left their job. This is because of changes to the LGPS regulations over the years.

If the member left before 2008, they fall under earlier regulations. This means they only need to show they’re permanently incapable of carrying out the job the benefits relate to, until normal pension age.

If the member left after 2008, they must also show there’s a reduced likelihood of gainful employment, because of their ill-health.

If an employer decides that their employee meets the criteria to award them early payment of deferred benefits due to ill-health, what date should be used as the date from which the deferred benefits will be brought into payment?

This will depend on the which scheme years the member falls into and on the ill-health certificate chosen:

• 2014 Scheme - Regulation 32(10) of the LGPS Regulations 2013 states “Where a member is entitled to early payment of pension due to ill-health under regulation 38 (early payment of retirement pension on ill-health grounds: deferred and deferred pensioner members), the first period for which retirement pension is payable begins on the date of the determination that the member is permanently incapable under that regulation.”
• 2008 Scheme - Regulation 50(4) of the LGPS Administration Regulations 2008 states “The first period for which any retirement pension under regulation 31 (early payment of pension: ill-health) of the Benefits Regulations is payable begins on the date when the member became permanently incapable as determined under regulation 31 of those Regulations.”
• 1998 Scheme - Regulation 31(6) of the LGPS Regulations 1997 states “If a member who has left a local government employment before he is entitled to the immediate payment of retirement benefits (apart from this regulation) becomes permanently incapable of discharging efficiently the duties of that employment because of ill-health or infirmity of mind or body he may elect to receive payment of the retirement benefits immediately, whatever their age.” Regulation 93(2) of the LGPS Regulations 1997 states “The first period for which any retirement pension under regulation 31 is payable begins in a case where they elects under paragraph of that regulation, with the day on which he elects.”
• 1995 and earlier schemes - Regulation D11(2)(b) states for the purposes of paragraph (1) "the appropriate date", in relation to any person, is their 65th birthday or, if earlier, the earliest of the following (b) any date on which they becomes permanently incapable, by reason of ill-health or infirmity of mind or body, of discharging efficiently the duties of the employment they have ceased to hold. Regulation D11(1) states if a member who ceases to hold a local government employment… becomes entitled in relation to that employment to a standard retirement pension and a standard retirement grant payable from the appropriate date.

What do we need to process an ill-health retirement?

So we can process an ill-health retirement, please send us a copy of the IRMPs certificate and confirmation of the date the benefits should be paid from.

Key:

OHS – occupational health services

IRMP – independent registered medical practitioner

IHRP – ill-health retirement panel

IDRP – internal disputes resolution procedure