Income protection - should I cancel

cici71

Hi, am hoping for some impartial advice please. I work for the council so have a generous sick leave policy. Due to health issues with my mother and could possibly be hereditary, back in 2019 I took out income protection insurance that will kick in after 6 months to give me £1,000 a month which isn’t loads but if I ended up being long term sick and then have to leave employment, this would cover some bills that would mean my husband and myself would not need to panic.
I am nearly 55. Just a thought….if I were to become long term sick and this scenario did arise, would it not be wiser to just take my pension early? Obviously a massively reduced rate but it equals the £1000 I would have received from my insurance. I’m currently paying £35 a month for it so if the outcome is the same amount of money, surely it would be cheaper to cancel the insurance and take early pension. Is this the right thinking here?
Any views much appreciated. Thank you

poseidon1

For the sake of £35 per month, does not appear on the face of things to make sense to cancel and rely instead on a reduced ill health pension.

Surely each year you delay taking the pension the reduction factor reduces so in financial terms you stand to lose far more in reduced pension in the years to come compared to the modest £35 monthly premium outlay.

Assuming the policy is written to age 65 the benefit relative to the premium appears to be very reasonable, as such might be worth reviewing the T & C's to ensure there are no onerous conditions that might affect a successful claim in future.

cici71

https://forums.moneysavingexpert.com/discussion/comment/81947411#Comment_81947411

Thanks for this. By my next question, you’ll realise my knowledge about pensions isn’t great. So if I was to leave work early due to ill health and you’re saying it’s best to delay taking the pension, if I’m not working and contributing to it anymore does it continue to grow ? Is that why you’re advising it’s best to leave the pension as is and continue paying the £35 insurance instead.

poseidon1

https://forums.moneysavingexpert.com/discussion/comment/81948157#Comment_81948157

I think the answer is in your intial post where you state 'would it not be wiser to just take my pension early? Obviously a massively reduced rate but it equals the £1000'.

This would seem to suggest your pension scheme is a final salary arrangement so there should be progressively less reduction to your annual pension entitlement the nearer you get to normal scheme retirement age before taking it, where you have left employment and no further contributions/service accrues .

You should be able to contact the scheme administrators and get pension forecasts on the assumption you have deferred taking a pension at ( say) ages 57 and 60. Each quote should show marked increases to your pension entitlement compared to age 55, solely due to the reduction factor diminishing.