Specialist
If you find yourself in the situation where you are unable to work due to illness, hopefully you have an income protection plan to provide you with a regular income while you recover.
You may also get the Illness Benefit from the Department of Employment Affairs and Social Protection. If you are permanently incapable of working, you will be able to claim the Invalidity Pension. Another source of income will be your pension plan.
Ill Health Early Retirement
If you are unable to carry out your normal employment or if your illness (mental or physical) seriously impairs your earning capacity you can access your pension early. The Revenue will allow your pension to be accessed at any age in this situation. Revenue approval does not have to be sought but the trustees (for company schemes) or the life company (for individual pensions) will seek medical evidence that you cannot work and have to retire early.
If you are in a Defined Benefit pension, the maximum benefit payable is what you would have received if you had worked to retirement based on the salary of your early retirement. This means you can get up to the maximum 40 years service pension regardless of when you stopped working.
Those in Defined Contribution pensions are not quite so lucky, they get the value of their pension fund. And if you opt for the ARF option, you still have to meet the guaranteed income of €12,700 requirement. This will result in you putting €63,500 into a AMRF until age 75 and only being able to access 4% each year. For those with a small pension pot and unable to work, this is a serious flaw in the whole purpose of the AMRF. Legislation does not allow early access in the case of ill health. Another great reason for getting rid of the AMRF!
Serious Ill Health
If you are in the situation where your life expectancy is measured in months rather than years, you can cash in the full value of your pension. In this case, you receive the tax free lump sum that is payable to you (either 3/80ths of salary for each year potential service or 25% of the fund value) and the remainder is taxed at 10%.
If you own more than 20% of the voting rights of your company, the Revenue must be notified that you are commuting the value of your pension under the grounds of serious ill health
Steven Barrett is the Managing Director of Bluewater Financial Planning.