Introduction
This Factsheet looks at the major health issues YOU should be thinking about when it comes to retirement planning.
Your health affects your ability to maintain your current lifestyle and your expectations about what you might want to do in the future. Your ability to maintain your aspirations will depend upon a number of factors including your pension arrangements.
The Factsheet is designed to make you think about how your health could have a bearing upon your pension benefits and those of your dependants.
Some of the points are more obvious than others, but they are all important, so take a while and think about you, your health and that of your family.
If you are intending to get advice from a Financial Adviser ask them to take into account your answers to all of these questions, as well as any other health considerations you may have.
What are the important health issues I should consider?
Your state of health will have a huge impact upon your retirement planning, so you need to consider that status in terms of what it has been in the past, what it is now and your expectations of what it is likely to be in the future. So, in terms of key questions to ask yourself think about –
- How you would describe your health in the past?
- How would you describe your current health?
- Are there any health conditions that you suffer which may have an impact upon your retirement planning?
- Are there any hereditary health conditions in your family that may have an effect on your retirement planning for yourself and your dependants?
People maintain their homes, their cars and even their mobile ‘phones but seldom make the same time and spend the same effort on their pension benefits…until it’s often too late.
Who should I discuss my health with in terms of my pension?
If you are receiving advice e.g. through a Financial Adviser (or any other adviser for that matter), you may have been asked health questions as part of the advice process. Make sure that your adviser clearly understands whatever terms you may use to describe your health (e.g. poor, fair, good, or excellent) as this could affect the advice you receive.
If you are talking to your former employer or pension scheme about your health it is equally as important that they too understand fully what you mean when you describe your health.
Don’t assume that your own description of your health will be clearly understood by your adviser or pension scheme.
Why is my health significant in terms of my pension benefit?
The value of the benefit you and your dependants receive from your scheme depends upon the circumstances when you (or they) claim a benefit. The value of the benefit will depend upon whether you survive to claim your retirement benefit, and how long you live after that. So a change in your health could impact upon when you take your pension benefit.
Poor or deteriorating health may also mean that you are unable to work through to your Normal Retirement Age - if this is what you intended. This could greatly reduce the amount of benefit you receive at retirement.
It may also impact upon how you take your pension in terms of whether you maximise any cash lump sum that may be available or whether you decide to maximise your pension as income.
Example:
When my husband retired, we decided to take a pension which reduced by 50% on his death. He died after one year and I can’t afford to live on the reduced benefit.
Do all schemes pay pensions to members suffering from ill-health?
You may be able to receive benefits early subject to some age limits (see below) but the benefit paid might be very modest.
Some schemes will have your money invested in certain types of investment arrangement, which might restrict your access to the benefits until a fixed date unless you are prepared to incur some form of penalty.
Many pension schemes provide no ill-health benefit to preserved benefit members so if you suffer poor health you may need to see if you can access your pension benefit through other means.
How do I find out if my scheme pays ill-health benefit?
Write to your former employer or scheme administrator – but be specific telling them that you are a member with preserved benefits.
Remember that your former employer could change its ill-health benefits practices in the future, so it is makes good sense not to rely on information you had in the past and which may now be out of date.
What may have previously applied to a colleague in a similar situation may no longer be available to you.
If there is no ill-health benefit can I get my pension benefit early?
Most money purchase schemes will allow early payment but this is likely to reduce your benefits. You could consider transferring your pension to an alternative arrangement if this meant earlier access to your pension fund. Unless you are in serious ill-health you will not be able to access your pension in any arrangement before age 50. After 2010, this age increases to 55 for most of us.
A full analysis of your situation should be performed beforehand to ascertain whether this is a suitable course of action. Your Adviser should be able to conduct an analysis of your options for you, or will be able to put you in touch with a suitably qualified specialist.
Why is my family’s health important in my pension planning?
You should consider the ages (or ages at death) of your parents and grandparents as well as the health of your dependants.
Consider if there are any ailments, which, if inherited, may mean you would wish to think about retiring early.
The dependants’ benefits, if you die before retirement, will be the pension, which can be bought by the value of the pension fund credited to you at the time of your death. If you die soon after your retirement, their benefit will be determined by the decisions you make when you select the form of pension you want to receive at the date you commence drawing your benefits. You may be required to make some provision for your dependants in relation to part of your pension fund and your adviser or scheme would explain this to you.
Remember that pensions are only part of your financial planning and should be included in any inheritance tax solution you have undertaken.
Can taking my pension benefit affect other state benefits?
This is indeed possible, so careful consideration is required to avoid unnecessarily losing money from one source while receiving it from another.
If in doubt, seek advice.
My health isn’t good – what should I consider?
If your health is not good you should think about how you make maximum provision for your dependents.
If your health isn’t life threatening you might be able to retire and buy a pension for yourself which recognises your ‘impaired’ health and is cheaper than that available to someone in good health.
Don’t rely on information from old scheme booklets which may be out of date. Write to the administrators of your pension scheme to find out what might be paid to your dependents if you were to die now.
My health is great – what should I consider?
If you are currently in good health - congratulations! If you are close to the age when you might normally expect to receive your pension benefit you may wish to consider whether deferring your pension would make financial sense for you and your family.
Remember also, your health may deteriorate and it still makes sense that you should at least consider what would happen to your finances if it takes a turn for the worse.
So, all of the other items in this Factsheet are as relevant to someone in good health as someone suffering poor health.
Summary & Key Points
When making enquiries about your preserved benefit it is very important that you make it clear that you are a preserved member.
On average, people change jobs every 5 to 6 years. It is possible therefore, that you will have more than one pension benefit. For each pension benefit you need to consider the following items:
- Your health in the past and your current state of health.
- Are there any health conditions that you suffer which may have an impact upon your retirement planning?
- Are there any hereditary health conditions in your family that may have an effect on your retirement planning?
- Will your health deteriorate between now and your Normal Retirement Age?
- Are you sure that when asked, you have accurately described your health to your advisers and pension scheme?
- If you are considering taking your pension early because of your health, will this affect any state benefits or rebates you are or may be entitled to?
- Keep informed. Legislation may change. Your circumstances may alter.
- Money purchase schemes have many forms and can be quite different from one another. Don’t assume that what applies to your money purchase scheme will necessarily apply to other pension arrangements that you may have.
- HMRC impose rules, which registered pension schemes must conform to.
People seldom have identical pensions and you should avoid drawing comparisons with colleagues whose circumstances may at first appear the same but could emerge as having significant differences.
This is not an authoritative document. Seek professional advice from an appropriately experienced and qualified adviser.
My Health v1.0 Preserved MP
Last updated 01/09/2008
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