Taking a pension early through ill health

Q: Which benefits can be paid early on ill health grounds?

A scheme pension from a defined benefit scheme, often with an enhancement for ill health under the scheme rules. Drawdown or a lifetime annuity from a money purchase pot, because these are forms of pension covered by pension rule 1. A pension commencement lump sum. PTM063210 explains that although this lump sum normally requires the member to have reached normal minimum pension age (paragraph 1(1)(d) of Schedule 29), a lump sum paid earlier can still qualify where the entitlement to the related pension arises because the ill health condition is met. An uncrystallised funds pension lump sum. PTM063300 lists among its conditions that it is paid at normal minimum pension age or an earlier age if the member meets the ill health condition. This is a different test from the one for a serious ill health lump sum, which needs evidence that the member is expected to live for less than a year and lets the whole of the uncrystallised pot be paid out as a lump sum. Ill health retirement is about being unable to work in your occupation, and the benefits are paid in the ordinary forms.

Q: What goes wrong most often?

Treating any illness as enough. The test is permanent incapacity for your occupation plus actually stopping it, backed by a registered medical practitioner's evidence. Confusing the two ill health routes. Ill health retirement gives ordinary benefits early; the serious ill health lump sum needs a life expectancy below one year. Assuming the scheme must pay. The tax rules permit early payment; the scheme rules decide whether it happens and may use a stricter test. Using an early access firm. GOV.UK warns that some companies offer to help you get money out before 55 and that if the payment is unauthorised you pay up to 55% tax on it. Forgetting the effect on future saving. Taking drawdown income rather than a level annuity or scheme pension brings in the £10,000 money purchase annual allowance for every later year. If HMRC opens a check into your return, tax investigation insurance pays your accountant's fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

A registered pension can only be paid before normal minimum pension age, currently 55, if the ill health condition in paragraph 1 of Schedule 28 to the Finance Act 2004 is met: a registered medical practitioner’s evidence shows you are, and will continue to be, incapable of carrying on your occupation because of physical or mental impairment, and you have in fact stopped doing it. Once that test is passed, the payments are taxed like any other pension: income is taxed through PAYE at your marginal rate, and a tax free lump sum is available within your lump sum allowance.

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What exactly is the ill health condition?

Section 165 of the Finance Act 2004 sets out the pension rules that every payment from a registered pension scheme must follow. Pension rule 1 says no pension may be paid before the member reaches normal minimum pension age unless the ill health condition is met. HMRC’s Pensions Tax Manual at PTM062100 explains that payments made in these circumstances are generally called ill health retirement.

Paragraph 1 of Schedule 28 says the condition is met if:

the scheme administrator has received evidence from a registered medical practitioner that the member is (and will continue to be) incapable of carrying on the member’s occupation because of physical or mental impairment, and
the member has in fact ceased to carry on the member’s occupation.

PTM062100 adds that a registered medical practitioner means a person fully registered under the Medical Act 1983 who holds a licence to practise. The scheme must keep the medical evidence for at least six years after the end of the tax year in which the ill health pension started or the lump sum was paid.

The normal minimum pension age itself is due to rise from 55 to 57 on 6 April 2028, so the ill health route will cover anyone under 57 from that date. Our page on the normal minimum pension age explains the change and the protected pension ages that sit alongside it.

Does “your occupation” mean any job, or the one you do now?

The tax test looks at the member’s own occupation, not every possible job. HMRC describes it as the minimum requirement set by the legislation and points out that scheme rules can be stricter. A scheme might, for example, require the member to be incapable of carrying out any occupation rather than their current one. Where the rules are stricter, the scheme’s test is the one you have to pass to get paid, even though a looser test would satisfy HMRC.

Both limbs have to be satisfied. The evidence must point to a permanent incapacity (“and will continue to be”), not a period of sick leave, and the member must actually have stopped the occupation concerned. Someone who is signed off but still employed in the same role and expecting to return would not normally meet it.

The scheme is also not obliged to pay early just because the tax test is met. Whether ill health benefits are offered, and on what terms, is a matter for the scheme rules. GOV.UK notes that you might be able to get higher payments if you take your pension early because of a health condition, and suggests checking with the provider.

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Which benefits can be paid early on ill health grounds?

A scheme pension from a defined benefit scheme, often with an enhancement for ill health under the scheme rules.
Drawdown or a lifetime annuity from a money purchase pot, because these are forms of pension covered by pension rule 1.
A pension commencement lump sum. PTM063210 explains that although this lump sum normally requires the member to have reached normal minimum pension age (paragraph 1(1)(d) of Schedule 29), a lump sum paid earlier can still qualify where the entitlement to the related pension arises because the ill health condition is met.
An uncrystallised funds pension lump sum. PTM063300 lists among its conditions that it is paid at normal minimum pension age or an earlier age if the member meets the ill health condition.

This is a different test from the one for a serious ill health lump sum, which needs evidence that the member is expected to live for less than a year and lets the whole of the uncrystallised pot be paid out as a lump sum. Ill health retirement is about being unable to work in your occupation, and the benefits are paid in the ordinary forms.

How is an ill health pension taxed?

Exactly as it would be at normal retirement age. There is no special rate for ill health pensions from a registered scheme.

Regular income from a scheme pension, annuity or drawdown is pension income. GOV.UK says most pension providers deduct Income Tax using PAYE and send a P60 after the end of the tax year.
Rates for 2026 to 2027 outside Scotland, with the standard personal allowance of £12,570: 20% on income from £12,571 to £50,270, 40% from £50,271 to £125,140 and 45% above that. The personal allowance is reduced by £1 for every £2 of adjusted net income above £100,000.
Tax free lump sum. You can usually take up to 25% of the amount built up in a pension tax free, subject to the lump sum allowance, which is £268,275 for 2026 to 2027 unless you hold a protected allowance. In flexi access drawdown, PTM062730 explains the tax free lump sum equals one third of the funds designated for drawdown.
Drawdown income is taxed under section 579A of the Income Tax (Earnings and Pensions) Act 2003 at your marginal rate in the year you take it. The first payment is often taxed on an emergency basis; see emergency tax on pension withdrawals for how to reclaim it.

Can my ill health pension be cut or stopped if I recover?

Yes, if the scheme rules allow it. A scheme pension normally has to be paid for life at no less than its initial rate, but PTM062340 lists the circumstances in which it may be reduced or stopped without losing its status, and the first is a scheme pension paid on the grounds of ill health. PTM062100 explains the purpose: schemes can pay a level of pension that reflects the member’s capacity, and adjust it if the member later recovers wholly or partly, without triggering unauthorised payment charges.

Will taking benefits early limit my future pension saving?

It can, depending on how the money is taken. The money purchase annual allowance, £10,000 for 2026 to 2027, applies once you flexibly access a money purchase pot. PTM056520 lists the trigger events, including the first income payment from a flexi access drawdown fund, the first uncrystallised funds pension lump sum and a lifetime annuity that can reduce in amount. The list contains no exception for ill health, so a member who takes drawdown income at 50 on ill health grounds and later returns to work in a different role is capped in the same way as anyone else. PTM056530 confirms that a tax free lump sum on its own, a lifetime annuity that cannot decrease, and a scheme pension from a scheme with at least 11 other pensioners do not trigger it. See the money purchase annual allowance for the detail.

There is also a relief in the year of retirement in severe cases: GOV.UK states that HMRC does not tax anyone for going over their annual allowance in a tax year if they retired and took all their pension pots because of serious ill health.

A worked illustration

Illustration only. Ellen is 50 and works as a physiotherapist. After a spinal injury, a consultant’s report sent to her personal pension provider confirms she is permanently unable to work as a physiotherapist, and she resigns. Her money purchase pot is £120,000 and she has no other income in 2026 to 2027.

She designates £90,000 into flexi access drawdown and takes a tax free lump sum of £30,000, one third of the amount designated.
She draws £15,000 of income in 2026 to 2027. The first £12,570 is covered by her personal allowance and the remaining £2,430 is taxed at 20%, so her tax for the year is £486, collected through PAYE.
The first drawdown payment triggers the money purchase annual allowance, so if she later retrains and joins a workplace scheme, money purchase contributions above £10,000 a year would face a charge.

Had she used the £90,000 to buy a lifetime annuity that cannot decrease, the income would be taxed the same way but the money purchase annual allowance would not apply.

What goes wrong most often?

Treating any illness as enough. The test is permanent incapacity for your occupation plus actually stopping it, backed by a registered medical practitioner’s evidence.
Confusing the two ill health routes. Ill health retirement gives ordinary benefits early; the serious ill health lump sum needs a life expectancy below one year.
Assuming the scheme must pay. The tax rules permit early payment; the scheme rules decide whether it happens and may use a stricter test.
Using an early access firm. GOV.UK warns that some companies offer to help you get money out before 55 and that if the payment is unauthorised you pay up to 55% tax on it.
Forgetting the effect on future saving. Taking drawdown income rather than a level annuity or scheme pension brings in the £10,000 money purchase annual allowance for every later year.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.