She says this tends to depend on the rules of the individual scheme, but that generally with DC schemes, the view is that if a person cannot do their current role, then it is sufficient to qualify them for ill-health early retirement.
Rachel Vahey, head of public policy at AJ Bell, says: "It becomes more complicated if a member is unable to perform their occupation but could perform a different type of occupation, for example a desk-based job following an accident. Then it may depend upon the scheme rules.
"Some may say early access is allowed if you cannot continue ‘your occupation’ and others may state it’s only allowed if you cannot continue ‘any occupation’.
"Someone who is working in a business as a senior manager or director may get caught by this. For example, they may not be able to perform their previous high-powered job and decide to return on a consultancy or reduced basis, purely because they are reluctant to sever all ties. But if they are still involved with the company at the same level, HMRC may view that as performing the same role. In this case they may find it easier to walk away."
She adds that a client must already have stopped doing their occupation in order to seek an ill-health early retirement.
In the case highlighted by FT Adviser above, the client in question had to provide evidence that the ill-health meant they could not do their most recent paid job, as a receptionist, despite that having been many years ago.
Trott says the most important consideration for any adviser looking at the issue of ill-health early retirement is the scheme rules, more than the HMRC guidance, as the latter is a minimum requirement and schemes are not obliged to offer the full range of options beyond that.
An example of varying options is that within NHS pension schemes there is a tier one and a tier two option, depending on the level of stress associated with the role.
Vahey highlights another area where HMRC is not very specific in its guidance, saying: “Some people may want to know what happens if they recover and go back to work. This isn’t something that is covered in depth by HMRC guidance – that only mentions reducing a DB scheme pension.
"Returning to work shouldn’t strictly invalidate the earlier benefits but it’s something HMRC could probe into, especially whether the person genuinely met the ill-health criteria in the first place. And it’s worth checking scheme rules on this point – some may require any income payments to stop on recovery, others allow them to continue.”
