Ill Health Retirement, Severance Pay & Pension Lump Sum...

Roy58

After working for 36 years in the rail industry, my employer is terminating my contract due to ill health on December 27th 2010. My severance pay will be £38371 which will be taxed over £30k. In addition to this, I will have the option of either applying for an incapacity pension from the pension fund, which would be £85K lump sum and £12700 pension, but this is not guaranteed OR, if this is unsuccessful or I dont decide to apply, I can take my pension benefits early. I would receive 81% of my pension pot for taking it early. This would be £67K lump sum and £10136 pension.

Apart from the dilemma of whether to apply for incapacity pension or take my pension early, can anyone offer advice on what I can do with either of lump sums depending which way i decide to go.....

The Severance pay would be used to supplement whatever pension income I should receive, so the lump sum could then be left alone to grow at whatever the prevailing rate is....

The severance payment of £38K is not enough for us to live on until I am age 55 ( I am 52 now) so I have to take my pension benefits when I leave my current employer because I cannot guarantee to find other work after I leave. I cannot take that risk so I will either take my pension benefits early or I will apply for and maybe get an Incapacity pension but I dont feel I'm incapable of working. My plan would be to find suitable part time employment to supplement my pension income, thereby leaving the severance pay to grow as well, but failing this, the severance itself would be used to supplement the pension income....

I have quite a few things to think about so not too sure about investing lump sums or tax liabilities attached to lump sums...

Perhaps somebody could advise me.

Thanks !!

getmore4less

Looks to me like you should apply for the incapacity pension.

If you get this will there be any conditions like not being able to do paid work.

£38k should last 3 years if expenses are under control, do you still have a mortgage, kids at home or debts?

I would also have a good look at your finanaces and try to aim to get the "normal costs" in line with the potential pension income which would make the £38k last 3 years and give you a more secure future.


Then you can use whatever capital or other income you get top fund extras like better cars, holidays, more going out etc. knowing that your day to day living costs will allways be met from the pension.

you say us is there anothe potential earner in the household.

Remember the state pension will kick in later.

Is there any option to buy back the reduced pension back to the higher level


As for investing this is something you should take time over and not ruch into anything risky till you have a better understanding.

Biggles

Normally, with occupational ill-health retirement pensions, the only restrictions are if you return to work in the same industry.

There wouldn't be anything to prevent you from working in any other capacity, or even in the same capacity for a different employer (but check the terms of your scheme carefully - they should have given you an explanatory leaflet).

Looks like applying for ill-health benefits is a 'no-brainer'. If you are unsuccessful (and I can't see why you would be, as it's your employer who is telling you you can't carry on working, not you 'trying it on'), you always have the option of taking the reduced pension early.

Roy58

thanks for your advice guys..... I have been advised by my pension office that if i am granted the incapacity pension by my pension fund, then i will not be able to do ANY paid work, not just paid work in the rail industry, but paid work ANYWHERE !!! If I am assessed later on, after being granted the incapacity pension, as being fit to work in any role, inside or outside the rail industry, then the pension will be taken off me until age 60 as I would then be 'fit to work'..... Additionally, my GP and consultant have advised it would be better for me to remain in some form of employment if i am able to work, even if it is part time, as it is well known for people to decline into ill health, and possibly mental health, if they have to finish work where they were once in full time employment........ its a difficult choice i have to make..... If i get the incapacity pension I cant work for at least 8 yrs so i would be living off the lump sum....I am only 52 yrs old.... If i opt for the early retirement pension it is a slightly lesser amount but I can at least look for part time work to supplement my pension..... but if i opt for the incapacity pension and DONT get it, then I will be offered the option of taking the early retirement pension anyway....... Yes I do have children still at home, they are 11 & 15 , and my wife says she can look for a P/T job too ..... No I dont have a mortgage but i pay rent.... I currently have nil debts...

Biggles

Roy58 wrote: »

I have been advised by my pension office that if i am granted the incapacity pension by my pension fund, then i will not be able to do ANY paid work, not just paid work in the rail industry, but paid work ANYWHERE !!! If I am assessed later on, after being granted the incapacity pension, as being fit to work in any role, inside or outside the rail industry, then the pension will be taken off me until age 60 as I would then be 'fit to work'....

All pension schemes are entitled to have their own rules, but that sound unusal to someone like me, coming from a public service background.

Partly because 'fit to work' can mean 'fit to do limited part-time work', for example, which would mean you would still need the support of your pension.

What scheme is it? Have you got a copy of the terms of the scheme?