serious ill health retirement

mexico2372

Hi,

Well, after years of reading this site i now find myself posting for the first time
Anyway, i'm 44 and was diagnosed with terminal cancer almost 3 months ago. I have not worked in this time and only get SSP from my employer each month. I do feel like i could return to work at some stage in the future as i am feeling the best i have felt in months but still, little steps at a time i think.

I have found i do have an old Civil Service pension which i stopped contributing to in 2003 on leaving for a new job. I have just under 15yrs service.

I called the people on a letter i had and explained i had terminal cancer and that my Oncologist said it was probably about 12 months i had to live. I got told to also contact my old employer and inform them, which i did and they have sent me forms to fill in.
The firms were all about serious ill health retirement as opposed to serious ill health lump sum.
I said that i did not want to be "retired" as such as i would hopefully get back to my work for a while before i die as i love my job (tour guide/driver)

I asked again and she said she wasn't sure and "just fill the forms in anyway as i am not contributing at all to the pension now via my present employer so it should be ok" completely ignoring the point being that i didn't want to be retired as i may possibly want to work again sometime, regardless of my Oncologists view.

Now i fully understand that serious ill health means that my life expectancy is a max of 12 months (which it is, according to my oncologist) but what happens if i live longer than that and i have since been retired due to serious ill health? If i take this lump sum payment due to serious ill health retirement i guess this means that i can never ever work again, even if i do live longer than expected?

I'm confused as one "expert" whom i spoke to who was a friend of a friend, said no, i would get a serious health lump sum payment...not retirement due to serious ill health! but the Civil Service people seem to only say it's the retirement route or nothing. To be honest the woman at my old work did not seem to know very much at all, and the actual pension phone number i have got gave me completely conflicting advice, in fact it seems more like a call centre, not a personal advisor who really knows the whole procedure as they were so vague and not exactly full of information.

All i want is to possibly use some as a lump sum and leave the rest....and also have the possibility of working again sometime in the future if i feel better and better like i am just now or by some miracle i do indeed live longer than the 12 months would this effectively barr me from ever working again??

So sorry for the long post, i try to give as much info so i'm sorry if it sounds confusing. Any guidance would be much appreciated.

atush

Fist of all, dont you have any other pensions from other work? Such as DC pensions? They pay out easily with such a diagnosis.

do you have a spouse or any dependants? If not, you are one of the very very few who could possibly transfer to a DC scheme.

AS for the whole working, not ever working thing- if you retire and you are terminally ill, it is expected that you are actually terminal.

Either you aren't terminal, or you haven't come to terms with being so, or perhaps you are worried if you miraculously recover? I dont know the answer to no3, but i'd be so happy that I would take whatever comes? Just ask the pension dept what would happen should you see a Damascene recovery?

jamesd

Once you have qualified for and taken a serious ill health lump sum that's it, no problems if you live longer, even to 120. Indeed, one possible use of the money is to pay for treatment that the NHS might not pay for that could help to produce that result. If you recover and go back to work, great. If you don't recover but want to work while you can, that's also fine.

An ill health pension is different from a serious ill health lump sum. If the work pension is defined benefit like final salary do not do anything that may apply for them to pay you a serious or ill health income. That would bar you from transferring out the capital value! Such schemes tend not to have very good policies and practices for those diagnosed with fatal illnesses and the best choice is often to transfer from the defined benefit pension to a personal pension, then take the whole value as a serious ill health lump sum tax free.

I'm no expert on the Civil Service scheme so wait a little for those more familiar with it to comment but from my dim and unreliable recollection it is one where you will need to transfer out. I'm not even sure if it is possible to do that from that scheme, given that it is unfunded.

It's extremely unlikely that you will be able to take just some of the money in a workplace defined benefit pension as a lump sum and leave the rest. Even if you could it would be the wrong choice for a person with your life expectancy.

All in all because the money from a serious ill health lump sum is tax free it is usually going to be better to take it, even if you don't need it all. If you die it'll be part of your estate, taxed. If you have a spouse they could inherit from a pension pot into their own pension tax free if you've taken nothing but otherwise there would be a 55% tax charge. So no spouse and it's better to have the money all taken and part of your estate because that is better value for whoever inherits. If you do have the spouse and inheritance tax liability then it would be possible to get the money transferred into one pension scheme and split it into two parts, one to go to the spouse and the other to be all taken out as a serious ill health lump sum.

hugheskevi

I have found i do have an old Civil Service pension which i stopped contributing to in 2003 on leaving for a new job. I have just under 15yrs service.

That means you are probably in the classic section, but could be classic plus or premium.

The forms were all about serious ill health retirement as opposed to serious ill health lump sum.

Looking at the scheme rules and in particular 3.4b it appears that the process is firstly to qualify for serious ill health retirement, and then if the Scheme Medical Advisor considers life expectancy to be less than 12 months the member can choose to commute the pension into a lump sum equal to 5 times the annual pension.

I said that i did not want to be "retired" as such as i would hopefully get back to my work for a while before i die as i love my job (tour guide/driver)

Retired in this context doesn't mean you cannot work again, just that the pension can be paid under ill-health rules. If you were still an active member the rules might be different, but as you are deferred that isn't relevant.

Now i fully understand that serious ill health means that my life expectancy is a max of 12 months (which it is, according to my oncologist) but what happens if i live longer than that and i have since been retired due to serious ill health?

If you took a serious ill health pension it continues to be paid, regardless of whether you work again or not (worth checking that as I am not quite 100% certain, and I think it might get reviewed if were to work again in Civil Service as to get the serious ill-health award you should be incapable of doing any job - non Civil Service jobs shouldn't have any impact).

If i take this lump sum payment due to serious ill health retirement i guess this means that i can never ever work again, even if i do live longer than expected?

Your pension is basically extinguished, even if you were to survive a long time (some terminally ill people survive many years, and end up being worse off by taking the lump sum than if they had taken the pension). You can work again if you like.

You may wish to investigate what you would get transferring out the benefits to a separate scheme (a Defined Contribution scheme) and accessing the pension pot under terminal illness rules, but do keep in mind survivor benefits will be paid under classic and given your age may be of significant value.

jamesd

hugheskevi wrote: »

Looking at the scheme rules and in particular 3.4b it appears that the process is firstly to qualify for serious ill health retirement, and then if the Scheme Medical Advisor considers life expectancy to be less than 12 months the member can choose to commute the pension into a lump sum equal to 5 times the annual pension.

Just five times the pension would be a shockingly bad exchange unless the pension is hugely boosted above normal levels due to the reduced life expectancy.

If it would just mean getting five times the normal pension then transferring out would be the way to go because that could be expected to pay more like 20+ times the normal annual income.

The survivor benefits may have substantial value if you have a spouse. The trouble is those tend to be a substantial reduction on the full pension payment and that would also tend to make transferring the better deal. But I do not know what the survivor benefits for those scheme are. If they are 100% survivor's pension that would be a good deal, not a bad one. If it's 50% survivor's pension best to forget about that compared to transferring out.

System

Hi

Well I have dealt with a similar case, and the information given is always the same....

You need to leave the best finances for your dependants as you can.

If you take your ill-health retirement, and the MAXIMUM lump sum, the pension should be guaranteed for 5 or 10 years, then your partner gets a pension.

This is considered by me (personal opinion) on the best solution to an awful situation.

As I dont know the accrual rate and guarantee I cant show a decent example.

15 years in an 80ths scheme gets 18.75% of the salary as a pension
15 years in an 60ths scheme gets 25.00% of the salary as a pension

If we look at what can got for a 5 year minimum (£12000) as salary.

£2250.00 pension (£1687.50 with a lump sum of £6750.00 )
£3000.00 pension (£2250.50 with a lump sum of £9000.00 )

If the pension guarantee was for 5 years minimum then the package value could be

£15187.50 plus dependants pension
£20250.00 plus dependants pension

SO



Ask about the minimum period the PENSION would be paid for (the LGPS is 10 years - which means 120 monthly payments; if iI die earlier the balance is paid as a death benefit; If I live it just continues.).
Taking 5 times as lump sum is worse than a pension and a lump sum.

If you can post the scheme type maybe you can get better information from here.

jamesd

Doing a transfer and using that to provide pension income would be expected to pay out much more than a typical ill health pension then spousal pension. The main exception would be a100% spousal pension.

In your example, a fair transfer value would be perhaps 28-30 times the pension payment, so around £90,000 for the £3,000 income example. For long term income taking about 4% of that a year could be taken, so around £3,600 for the life of the spouse.

mexico2372

Hi guys,

Wow, thanks for the helpful replies, much appreciated.

On looking at your replies, then taking a look at the forms i have been sent by my former Civil Service employer i now see that i think i was simply being a total dumbass on some of this. :rotfl:

On first looking i panicked as it says i have to write down why i cannot do my duties any longer and all that type of stuff and also saw that the report goes to my former employer. I jumped the gun into thinking that the report would go to my employer i am getting SSP from at the moment and i had to fill in the form as to my current job (even though i've not worked for months) Now i realise, on looking more in depth it is about my old civil service employer and i have to fill the form out as if i was still working there and as to how i could not perform my duties there. (even though i left in 2003)
It just seemed weird as it was not overly clear at first on the forms. So now i know it's not anything to do with my current employer that i get SSP from, that was what i was panicked about so now i understand this. :T

Now, to make clear for possible other areas, i do not have any kids and i am divorced a long time ago so i am single in that sense. My g/f and my "step daughter" are not from here and do not live here.

The Civil Service pension i hold is called the "classic" as i see someone mentions this. So it is the classic and is also deferred as i am a past member.

My latest calculations from them was valued as £3731.61 pa and lump sum of £11,194.81 Not huge i know but still.

I have no other pensions whatsoever.

What is this DC, defined contribution scheme that a few of you have mentioned?

I apologise again, as i have absolutely NO idea about pensions in any shape or form. They are not my forte as you have probably easily managed to gather by my posts already.

Thanks already for some of the advice and also thanks in advance again for any other info that you may throw my way regarding this and possibly this transferring to a DC scheme too as it is a worry obviously even though i have a very optimistic view of that i WILL beat this and be here longer than the max of 12 months that my Oncologists have given me.

Cheers, :beer:

jamesd

A lack of potential for spousal benefits increases the value of transferring out, because that eliminates the potential for a spouse to get any ongoing income.

A defined contribution scheme is one where you or an employer pays an amount into a pension, either each month, as a lump sum or both. Personal pensions and SIPPs work in essentially the same way. All of these will have the ability to take the whole pension pot out as a tax free lump sum if a person's doctors say that they are expected to live for no more than twelve months.

So a transfer from the old work pension to a personal pension appears to be the way to go. To do that you will need the services of an independent Financial Adviser. Those can be found via unbiased.co.uk. Be sure to tell them why you are contacting them because some may not like to do this particular business.

mark55man

Sorry to hear about you situation and the extra stress of sorting this out.


Just to reassure you that most of the posters who contribute to this section of MSE are not IFAs yet have a broad practical knowledge of pensions. There are also a number of IFAs who post out of a community spirit and to improve education about personal finances.


So the advice you are getting is gold dust, however I support your getting some good professional advice from an independent advisor (IFA) as your circumstances need careful interpretation to get the best decision for you


This may include any life insurance issues as well as pensions - good luck with it all


As a last point - transferring from a defined benefit (final salary) pension into a defined contribution (money purchase) pension is almost always a bad idea and pension firms/IFAs (worried about mis-selling) will almost always council against it in the normal run of things. Your situation is one of the very small number of cases where it would be a good idea - hence why the process may seem more difficult than it should

mexico2372

mark88man wrote: »

Sorry to hear about you situation and the extra stress of sorting this out.


Just to reassure you that most of the posters who contribute to this section of MSE are not IFAs yet have a broad practical knowledge of pensions. There are also a number of IFAs who post out of a community spirit and to improve education about personal finances.


So the advice you are getting is gold dust, however I support your getting some good professional advice from an independent advisor (IFA) as your circumstances need careful interpretation to get the best decision for you


This may include any life insurance issues as well as pensions - good luck with it all


As a last point - transferring from a defined benefit (final salary) pension into a defined contribution (money purchase) pension is almost always a bad idea and pension firms/IFAs (worried about mis-selling) will almost always council against it in the normal run of things. Your situation is one of the very small number of cases where it would be a good idea - hence why the process may seem more difficult than it should

Oh yes for sure. As i said in my OP, i have read on here off and on whenever required and due to the great knowledge of many posters i have usually got any question answered without any need to even post anything. :T
Now, in my unfortunate position i'm glad i have indeed posted for the first time as already i have had some good advice....and it made me realise i was being a complete dumbass regarding the retired and working again question and it makes me laugh now reading back how i never realised until i got answers from here. :rotfl:

I obviously cannot get any IFA advice today being Sunday regarding this possible transferring issue so will wait and see tomorrow what i can do.
It does sound like it may be a little complicated and i do wonder just how i could transfer my existing one to another.....then declare my terminal illness and that i want to take a lump sum a.s.a.p and get a better amount?
Is it me being very naive again (as i did say i have absolutely NO idea about pensions whatsoever) or would this be ok? It just seems like companies would not allow me to transfer it into their scheme only for me to tell them i have serious terminal cancer and i want to take it all out the next day? It just seems like they would have something to safeguard from people to be able to do this, or maybe it's fairly normal, i have no idea
As it obviously needs to try to be processed a.s.a.p, i was originally diagnosed right at the beginning of May so time is already running down rapidly....too fast for my liking.
Anyway, i'll look in later and once again thanks for the info so far.