If you are away from work for any reason, keeping payments going for everyday living can be a nightmare. Having to cope with an illness can make matters even more traumatic and complicated. Naturally, your priority will be dealing with paying for the here and now, and focusing on your health. However, it is still important to make sure your long-term needs – like your pension – are being considered too. This article provides guidance on how you can safeguard your pension(s) during illness.
Employment
Firstly, if you do not know already, you will need to find out from your employer what benefits you will receive from them while you are sick and away from work. Will you be paid an income? For how long can you receive it and what are the terms and conditions?
Will your employer continue to make pension contributions?
Usually, if pay continues while you are ill, then contributions will also be paid to your pension. If so, this is great – but remember that there are often boundaries around how long these payments will be made during illness. If your income stops, so will your pension and National Insurance contributions (NI). The latter is particularly important because NI contributions are an important factor in how much State Pension you will receive.
If it does seem your illness may take you away from work for a long period, it may well be worth negotiating with your employer around how future payments could be made.
Does your pension have a waiver of premium?
Check out whether your pension includes a waiver of premium clause. This would have been written into the terms and conditions of your pension when you first set it up and protects your pension at times of illness. It is likely you would be aware of this facility as this extra benefit usually costs you a little more than an everyday pension. It is likely that the premium will cover you for a set period of time.
Income protection
Some employers provide income protection as part of a benefits package, but if they do not have it, you can set one up yourself so you have an income during times of illness. You should check with your employer regarding your particular benefits.
Can I take my pension early due to illness?
Current UK law states that you cannot access your pension until you turn 55. However, if you are unable to return to work due to illness, or any type of work at all, you may be able to take money from your pension earlier than this.
All pension schemes offer different terms and conditions so it is advised you speak to your pension administrator to find out what your options are. In circumstances where life expectancy may be less than a year, your pension scheme may allow you take all the money out of your pot.
Retiring early
If your illness is likely to terminate your working days, then it may well be worth looking at taking your pension early. How constructive this would be will of course be dependent upon how close you are to retirement age. As much as your pension fund will be useful to you, those savings were meant to cover the period you are in retirement. Is withdrawing your pension a viable option?
Speaking with a regulated financial adviser can help you to make sure you have explored all of your options. Withdrawing money early will leave you worse off in retirement.
Withdrawing savings from your retirement pot
In the UK, you are allowed to access your private pension from the age of 55 (rising to 57 in 2028). Access to savings resources at a time of financial crisis can be a real bonus – but it should only be taken with the greatest of caution. Even though you can start taking money from your pension from your mid-fifties, you will not receive your State Pension until you are 66 (currently, the government plans to raise this age to 67 by 2028). Therefore, the pension fund you have built up during your career still has to stretch over those intervening years at the very least. There are different ways in which you can access your money which includes tax-free cash, withdrawing lump sums or your whole pot in one go, setting up a regular income or even purchasing an annuity. How you will be taxed is also a huge factor to take into account.
It is therefore highly recommended that you seek the advice of a regulated financial adviser who can help you navigate your options and support you in finding the safest strategy for moving forward. As previously stated, withdrawing money early will leave you worse off in retirement.
On top of employment benefits, you may be able to claim sickness or disability benefits from the government. You can normally get statutory sick pay from your employer for up to 28 weeks. You can claim Employment and Support Allowance (ESA) if you have an illness or disability that affects how much you can work, and if your income is too low or if your statutory sick pay has ended. You can also claim Universal Credit if you are unable to claim ESA.
You may also be able to claim Industrial Injuries Disablement Benefit (IIDB) if your illness or disability was through your work.
Other benefits you may be able to claim for are DLA (Disability Living Allowance); AA (Attendance Allowance); CTA (Council Tax Reduction).
It is always worth claiming benefits as you will receive National Insurance (NI) credits when you do. If you are away from work a lot, it is a good idea to check what your estimated pension is likely to be (click here) so you can make voluntary payments if contributions to your State Pension are low.
Speaking with a regulated financial adviser or a benefits specialist can help you to make sure you are aware of all your options.
Whenever your normal income is suspended, reduced or put at risk there is a tendency to consider the immediate future before anything else. This, of course, makes absolute sense but this mindset should not detract from the fact that you will still need to protect your future finances – such as your pension.
If you are likely to be away from work, check out what your employer will offer and how pension contributions may be affected; what disability benefits you can claim and how your State Pension will be affected.
Pension access
You can consider taking money from your pension pot but this should be done only with the guidance of a regulated financial adviser because withdrawing money early from your pension will leave you worse off in retirement. In the UK, you can withdraw from your pension from the age of 55. However, if serious illness prevents you from working, you may be able to access your pension earlier. All pension schemes tend to have unique rules around this, but you will need medical certification to evidence your illness or disability.
If your particular pension scheme does not allow access (and having considered all options) you still wish to withdraw your money, you may need to transfer your pot to another fund or provider.
https://pensionaccess.co.uk/discovery/pension-basics/what-happens-to-your-pension-if-you-become-ill/
https://www.gov.uk/early-retirement-pension/personal-and-workplace-pensions
https://www.citizensadvice.org.uk/benefits/sick-or-disabled-people-and-carers/
We can help you to make the best possible decisions when it comes to your pension.
