The purpose of this note is to give an overview of ill-health retirement (IHR) and when someone may be eligible for ill health benefits under the LGPS and the TPS schemes.
Consider whether employee is eligible for IHR under LGPS?
For an employee to qualify for ill health benefits under the Local Government Pension Scheme (LGPS); the following criteria must apply:
- must have been an active member of the LGPS for two years (known as the ‘vesting period’).
- vesting period may be less than two years’ membership in certain circumstances (here).
The Trust/School, as the employer, must be satisfied that the staff member:
- is permanently unable to do their job until their Normal Pension Age, and
- is not immediately capable of undertaking gainful employment. (This should be based on a medical opinion not the employer’s opinion. The medical adviser should be briefed by the Trust/School about what specific information they need from the adviser based on the test set out in the scheme’s rules, as well as what time period the opinion needs to cover. If the medical adviser’s report does not address all the questions, further information or clarification should be sought.)
Normal Pension Age here is linked to State Pension age, which is 66 years old for men and women. Gainful employment means paid employment for at least 30 hours a week for a period of at least a year.
REMEMBER: IHR can be paid at any age!
Determine the appropriate tier of ill-health
What the individual is paid depends on which benefit tier they qualify for. The employer decides on the appropriate tier.
- Tier 1 – unlikely to be capable of gainful employment before Normal Pension Age
- Tier 2 – unlikely to be capable of gainful employment within three years of leaving, but they are likely to be capable of gainful employment before Normal Pension Age.
- Tier 3 – likely to be capable of gainful employment within three years of leaving, or before Normal Pension Age, if this is earlier.
For further information, see the LGPS website here.
Consider whether employee is eligible for IHR under TPS?
To qualify for ill health underfits under the Teachers’ Pension Scheme (TPS); the following criteria apply:
- Below the Normal Pension Age;
- Usually, have two years’ qualifying service;
- Medical evidence supporting IHR;
- Application signed by employer;
- Have left all pensionable service because of ‘incapacity’.
- Have suffered from the same or a related illness/ condition:
- at the point of leaving pensionable service; and
- at the point of applying for ill-health and benefit.
Ill-health needs to be the main factor in leaving pensionable service. Even if the member received a redundancy payment, the person must be incapacitated at the point of leaving pensionable service.
REMEMBER: If a staff member’s condition is terminal, the School/Trust should mention that certain retirement options are only available to them before their death. The School/Trust should take steps to ensure that the staff member has received and understood the information they have provided and are able to make an informed decision.
The Trust/School should also act swiftly in providing this information to those that are terminally ill, as speed can be of critical importance in these situations.
Determine the appropriate tier of ill-health
- Tier 1 – meets the ‘incapacity condition’ i.e., ‘incapacitated’ and likely to be ‘incapacitated permanently’. They could be permanently unable to teach but may be able to undertake other work up to Normal Pension Age.
- Tier 2 – permanently unable to teach and unable to undertake any ‘gainful employment’ up to Normal Pension Age. This is known as:
- ‘Total incapacity benefit’ in the 2010 final salary scheme; or
- ‘Total incapacity pension’ in the 2015 career average scheme.
Gainful employment is where a person’s ability to carry out any work is impaired by more than 90% and is likely to be impaired by more than 90% permanently.
Consider timing carefully
The application for IHR may still be considered against the ‘tier-two’ criteria even if the member is not receiving any pay from the employer providing that the employee remains ‘on the employer’s books’ without a break. This continuation of the employee / employer relationship is treated as remaining in ‘eligible employment’, as they remain under a contract of employment.
There is a maximum number of two years from the employee leaving pensionable service if the application is to be considered against the two-tier ill-health criteria. This is providing that the condition causing the person to leave pensionable service is the same, or linked to, the condition to which the IHR application relates to. This provides additional time for those who are forced to leave teaching due to ‘slow-to develop’ or ‘difficult-to-diagnose’ conditions, or conditions where it’s difficult to access suitable treatment quickly.
More than two years would be an out of service application and it would not be considered under the ‘tier-two’ criteria and no enhancements would be given. Note that leave pensionable service ends when:
- Their sick pay is less than half pay;
- They receive less than half salary for maternity pay*;
- They’re no longer entitled to statutory maternity pay*;
- They’ve opted out of the Teachers’ Pension Scheme.
*as well as other types of family leave including adoption, parental, paternity or additional paternity leave.
For further information, see the TPS Guide here.
Employer’s duty of good faith
Where consent or support for an application is required from the employer, there is a duty of good faith. This can mean that there are potential conflicts of interest – employer’s additional liabilities (strain cost) versus duty of good faith to support any application. If an employer is making a decision relating to its pension scheme, it must do so as a “quasi-trustee”, and not in its own interests as an employer, and should behave fairly and properly.
Internal Policies should be followed
The School/Trust’s policy on IHR should be considered and followed. Schools/Unions will often think IHR is the first consideration. However, in most cases it should be the last. It should be an alternative to dismissal and only having exhausted all other options. There is an obligation to consider IHR pre-dismissal, but not to grant it. Where the School/ Trust operates a pension where IHR is an option, it should consider that before dismissal to discharge the duty to act reasonably in all the circumstances before dismissing.
The School/Trust should also ensure that decisions are made correctly and that records are kept explaining the process followed. Records should include whether standard procedure was followed or departed from and the reasons why, information gathered, which factors were considered and which factors carried the most weight.
Does ill-health retirement constitute a dismissal?
The question of whether ill-health retirement of an employee constitutes a dismissal, which entitles the employee to notice pay and a right of appeal, should always be considered on the facts of the specific case. There are generally two situations that arise.
Firstly, if you have an employee who has been successful in their application for an ill-health pension and a mutually acceptable date for their last day of employment has been agreed with their employer, the employer is not required to dismiss and give paid notice. This is due to the employee effectively giving notice to retire and then becoming entitled to the payment of ill-health retirement benefits. This means that the employee is permanently unfit for teaching and so retirement must take place at the earliest possible date, and so the employer is not under any contractual obligation to serve notice to terminate the employee’s contract. This was confirmed in Healey v Bridgend County Borough Council.
Secondly, if you have an employee who has been successful in their application for an ill-health pension, but they are refusing to resign from their position, a dismissal for unfitness due to illness may need to be made, and this can only be affected by notice. In this situation, you would therefore have to pay notice and provide a right of appeal.
These situations are not clear cut and there is conflicting case law and so it would be advisable that you come back to us for further advice if you are dealing with ill-health retirement.
Other considerations
Consider taking out an ill-health insurance plan through an external provider aimed at limiting exposure to risk in this area.
Please come back to us for further information for advice on early retirement and compensation payments for members who are made redundant, retired on grounds of business efficacy, or retire early.
Useful Links
The following links provide some useful information on ill-health retirement.
This link is from the National Education Union and provides more information on the Teachers’ Pension Scheme:https://neu.org.uk/advice/your-rights-work/pensions/teachers-pension-scheme.
This link provides more information on ill-health retirement, in terms of steps to take, how to apply, how to calculate benefits and the retirement process:
https://www.teacherspensions.co.uk/members/planning-retirement/types-of-retirement/ill-health.aspx.
This link covers some specific examples of cases where teachers have retired due to ill-health:
https://www.local.gov.uk/ill-health-retirement-ending-employment.
Further Information
For further information on ill-health retirement,
please contact a member of our Schools HR team on
0345-026-8690 or schoolshr@wslaw.co.uk.