Ill health retirement vs wait until 55

ergomaniac

I would really value opinions and insights into my situation as I am totally bamboozled by the whole pensions side of things.

I have been paying to USS pension and have a small deferred LGPS pension. At present I have £14k in annual pension with £37k lump sum built up in my pension pot. I am 53 years old in March this year.

I have a long-term health condition that has meant I have had to take some lengthy absences from work and my ability to get into work and do my job is now getting tricky due to my health. My previous boss suggested I apply for incapacity retirement but that was a few years ago and I chose to carry on trying to keeping the work going.

I started a SIPP last year and am paying £1000 a month in (all of my available money) to try and increase money pot as there is no way I am going to be able to keep going in my current job until standard retirement age.

My questions are:

1. Is it correct that if I wait until I am 55 I can retire but I will lose 4% for every year I retire early?

2. If I apply and get partial incapacity retirement does that mean I can continue to work somewhere locally on less hours in a job I can sustain?

3. I am low maintenance and if I could get £1500 income after tax coming in that would pay my bills and current lifestyle.

4. Where is the best place to get advice aside from here ;-) to get advice on the best way to work out an 'exit plan' from my current work?

5. Am I doing the right thing putting as much money as I can into a SIPP?

6. If I stay in current job until I am 55 am I still able to apply for incapacity retirement or do I have to apply before I am 55?

I really thank those of you with experience in these matters for any tips and advice.

bluenose1

Hi, not sure of answers to your questions but I have found USS helpful when I have contacted them.
I know they have early retirement advice fact sheets if you can’t work due to ill health.
If you can you may be better putting money into your works USS D.C. pension rather than a SIPP as you may be forgoing the benefit of salary sacrifice. Though need to leave yourself approx £15k per annum as must earn national minimum wage after pension deductions.
Even when you have finished work if your taxable income is less than £12,500 per year you may want to look at the £2,880 top up.

I would suggest you get advice as to how best to maximise your income. Might be worth making an app with Pension Wise.
Good luck

hyubh

ergomaniac wrote: »

Is it correct that if I wait until I am 55 I can retire but I will lose 4% for every year I retire early?

4% is an approximation, but yes.

If I apply and get partial incapacity retirement does that mean I can continue to work somewhere locally on less hours in a job I can sustain?

'Somewhere' still with USS eligibility? Or 'somewhere' else entirely? Ill health retirement terms are scheme-specific (e.g. if you wanted to investigate taking your LGPS pension under ill health terms, those terms will be different to your USS pension's) - have you read the factsheet on the USS' website?

https://www.uss.co.uk/~/media/document-libraries/uss/member/factsheets/incapacity-retirement.pdf

The wording is rather woolly to me, though it looks like there are two tiers of ill health retirement ('partial incapacity' with an unreduced pension accrued to date and 'total incapacity' with an enhanced, unreduced pension), with neither ruling out re-employment with an USS employer:

Each case of re-employment after incapacity retirement will be considered on the specific circumstances affecting it, having regard to medical advice and the employment being considered in terms of duties, hours and remuneration. You should be aware however that the benefit is designed to cater for those members whose illness is such that it seriously affects their ability to carry out their normal employment and the generous provision of this benefit means that the trustee must ensure that the strict criteria surrounding the payment of such benefits are met.

(If the criteria were truly 'strict', the rule would be simply: re-employ with a USS employer, lose the ill health pension.)

If I stay in current job until I am 55 am I still able to apply for incapacity retirement or do I have to apply before I am 55?

Up to NPA. An unreduced pension is clearly preferable to a reduced one, even if you do get to be in your late 50s.

I really thank those of you with experience in these matters for any tips and advice.

You should take your previous manager's advice.

ergomaniac

Thanks for the insight so far. Very helpful thanks.

Yes, I have read the fact sheets but I'm still struggling getting my head around what it means for me individually.

We are being moved into salary sacrifice scheme in the coming month unless we opt out. I've chosen to stay in it.

I don't think I have a change of getting the higher tier incapacity benefit but think I would meet the criteria for partial and therefore may be able to take unreduced pension accrued to date.

bluenose1

if salary sacrifice then you wont pay National Insurance on your contributions so makes better financial sense to pit money in works pension rather than SIPP.

ergomaniac

I appreciate I may save National Insurance by paying into work pension by salary sacrifice but that means if I wanted to take my pension at 55 and didn't get incapacity retirement it would be significantly reduced. However, with the SIPP I can start to draw down on that from 55 without any reductions. Have I interpreted that correctly?

MPLMPL

ergomaniac wrote: »

I appreciate I may save National Insurance by paying into work pension by salary sacrifice but that means if I wanted to take my pension at 55 and didn't get incapacity retirement it would be significantly reduced. However, with the SIPP I can start to draw down on that from 55 without any reductions. Have I interpreted that correctly?

Have a read of the guide to investing in the USS Investment Builder (the DC part of the pension). "Accessing before retirement by transferring out:
At any point you may transfer out your money invested in the USS Investment Builder to another pension arrangement."
I'm piling money into this at the moment with the aim of retiring at 58-60. At that point I plan to transfer it out to a SIPP for drawdown, whilst deferring taking the Income Builder (DB) pension.
There is also the option "Accessing before retirement - From age 55 you can: Take your whole USS Investment Builder pot as a cash payment (UFPLS); or Take up to four cash payments each calendar year, while leaving the rest of your pot invested"

bluenose1

I am doing the same as MPLMPL, though intend to go at 55 at the latest. I emailed USS who confirmed I can definitely take my investment builder at 55 and then start taking my DB pension at a later date, probably 60 for me.
You can withdraw 25% tax free from your DC pot just the same as you can from a SIPP.