Retirement Due to Ill Health – a Demanding Time for All

Retirement due to ill health is usually an emotional, demanding time and a complex issue to resolve.

 Either the employer or the employee may propose the ill health retirement, which is then assessed based on physical, mental or psychological impairment related to the job.

The procedure typically takes a long time to complete the many internal processes. Added to this are the statements by both the employer and the employee, and the treating medical specialists. 

Employees have the right to refuse a medical examination, but a refusal could justify the rejection of the ill-health retirement.

Medical reports would vary depending on circumstances but typically include information such as x-rays, blood tests, ECG and histology results and reports by other health care professionals.

Employers must take steps to prevent this facility's abuse and ensure everyone's fair treatment.

Suppose there is a high incidence of applications for retirement due to ill health on psychiatric grounds. For example, for depressionpost-traumatic stress disorder or back problems, there should be an in-depth evaluation of the environment and conditions to establish and eliminate the causes.

Ill-health retirement options

The employer commonly instigates the process when an employee has been absent for an extended period, or periods, due to ill health and is unlikely to return to work.

The employer may first consider the option of dismissal on the grounds of incapacity as a result of the long-term illness. However, if the employer provides an ill-health retirement benefit, they must first consider the employee's entitlement to that benefit before dismissing them for ill health.

If the employer chooses to dismiss the employee based on incapacity, this is likely to be considered unfair dismissal.

Retirement due to ill health - steps to follow

Following the retirement due to ill health application, there is an extensive evaluation process considered in terms of the employee's;

  • Job and sick leave record. The duration of the condition and the period, or periods, away from work;
  • Existing functional capacity considering factors such as effort, tolerance, endurance and psychological demands;
  • Disability, to see if any reasonable changes in duties or work environment may accommodate the employee;
  • Potential to perform alternative work taking into account their education and training, work experience, skills and age;
  • Potential for rehabilitation and reskilling;
  • Reasonable expectation that they will be able to work again before the legislated retirement age of the pension scheme.

There may be a requirement for additional medical evaluations to help make the decision.

During this process, there are frequently differences of opinion to negotiate between the employer, the employee, and even their respective medical specialists.

This process can be very traumatic for the employee at a time when they are already under stress. So this matter must be handled sensitively and quickly by the employer.

Pension options with retirement due to ill health

There are significant differences in calculating the pension options depending on whether the employee is on a defined benefit or a defined contribution pension scheme.

In addition to the pension, the employer may provide accident, or disability, insurance.

In the case of a defined contribution scheme, the payout will be the value of the fund at the date of leaving work. In this case, it is often the employee, especially if they are relatively young, who will try to extend their employment—trying to find an alternative to retirement due to ill health—exhausting all other options.

With a defined benefit pension, there may be several options depending on the scheme rules and interpretation by the trustees.

Most pension schemes provide a pension if you can no longer work.

The payouts and calculations of the pension can vary a great deal. Ideally, they will work out the pension payment if the employee has worked through to the normal retirement age (usually about 65).

Other schemes may not be as generous, and the payout may depend on whether you are considered incapable of any work or just the job you currently hold. This interpretation is frequently a cause of dispute in pension schemes. Particularly with disability insurance provided for by the employer alongside the regular pension scheme.

It is advisable to get the opinion of a third-party specialist to evaluate the best pension option. There are usually several alternatives with the pension, lump-sum, and tax payments. The final decision on the "best option" may be further complicated by the expected lifespan of the beneficiary.

There is no "one size fits all", and every evaluation for an ill health retirement case will depend on personal circumstances and the pension fund rules and practices.

Retirement due to ill health – the implementation

Once the employee and company agree on retirement due to ill health, the next step would be to agree on a date that gives the company sufficient time to prepare.

During all stages of the procedure, both parties should keep a detailed record of actions and decisions.

Patience, compromise and empathy are essential in amicably resolving this sensitive and stressful issue.

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Retirement today is a scary prospect for many folks. Financial, Health and Future challenges! How prepared are you?