What happens to my pension when I am ill?

What happens to my pension when I am ill?

When managing your pension, it’s vital to understand all the options you have available should you become ill.

This is the best way to put your mind at rest and prepare for the future. It’s important to recognise that illness can result in a lack of access to work, which might mean you end up paying less into your pension pot, reducing the final amount.

If you’re unable to make contributions to your pension due to illness, there’s no need to panic, as there are some helpful avenues you can explore.

What happens to a workplace pension?

On both a workplace-defined contribution plan (the most common plan) and a defined benefit plan, if you fall ill and your employer reduces, suspends, or stops your pay, your pension contributions will diminish or stop completely.

If you’re on paid sick leave, your pension should keep performing as usual, as your employee will still be deducting a fraction of your pay to put into your pension pot.

Personal pensions when ill

Personal pensions can be a little trickier to manage when you’re ill since you may have less money to contribute to the pot at the end of each month, particularly if the illness is preventing you from working as a freelancer or contractor.

There are ways to protect your pension in this scenario, such as the inclusion of an income protection policy. This can be set up by you personally, and it essentially keeps paying you out a wage when you’re unable to work from illness. Generally, income protection stops paying out when you reach the state pension age.

Receiving income protection could enable you to keep up with your pension contributions even if you’re unable to work through illness.

It is also possible to get your contributions paid for you through a waiver of premium. This usually needs to be an agreed-upon feature of your pension plan before you sign up for it. If your pension provider can give you this feature, it’s certainly worth checking out. While it might cost a little more to sign up for, it can keep you covered in the case of an emergency.

Serious and terminal illness: Understanding pensions when terminally ill

If you are seriously or even terminally ill, you may be able to get access to your pension earlier than the age of 55 or whatever your policy’s minimum age limit is set at.

You might be prevented from ever working again, in which case, you may need to talk to your pension provider about receiving your pot early as an income, no matter how old you happen to be.

In situations where your life expectancy is a year or under, you may be able to receive your entire pension as a tax-free lump sum.

If you’re unsure about your existing policy, it’s important to reach out to the provider and voice your concerns, as they should be able to point you in the right direction.

State pension

You’ll have to reach the state pension age before it starts paying you any money, and if you’ve been struggling to pay your national insurance contributions as a result of illness, you may find that the state pension doesn’t quite reach the full amount.

You may be able to get national insurance credits to help you out with this if you rely on state benefits to support you while you’re ill, so make sure you find out if you’re receiving these or not, as it may affect your pension later on down the line.

It may be worth seeking financial advice before you make any big moves regarding pension withdrawal, just to be on the safe side. For extra clarifcaiton please vitis the government website here. 




The content of this article is for general information purposes only and should not be construed as legal, financial or taxation advice. You should not rely on the information contained in this article as legal, financial or taxation advice. The content of this article is based on information currently available to us, and the current laws in force in the UK. The content does not take account of individual circumstances and may not reflect recent changes in the law since the date it was created. It is essential that detailed financial and tax advice should be sought in both jurisdictions and any legal advice, if required.

This notice cannot disclose all the risks associated with the products we make available to you. When making your own investment decisions it is important you understand that all investments can fall as well as rise in value and it is possible you may get back less than what you have paid in. You should also be satisfied that any investments you choose are suitable for you in the light of your circumstances and financial position. You should seek financial advice if you are not sure of what’s best for your situation.


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