Regulation 20 of the LGPS (Benefits, Membership and Contributions) Regulations 2007 says that if an employing authority determines, in the case of a member who has at least two years total membership, to terminate their local government employment on the grounds that their ill-health or infirmity of mind or body renders them permanently incapable of discharging efficiently the duties of their current employment and that they have a reduced likelihood of obtaining gainful employment (whether in local government or otherwise) before normal retirement age, they shall pay ill-health benefits.
Before making a determination, an authority must obtain a certificate from an independent registered medical practitioner qualified in occupational medicine.
Gainful employment means paid employment for not less than 30 hours per week for a period of not less than 12 months.
Qualified in occupational health medicine means that the independent registered medical practitioner must hold a diploma in occupational medicine (D Occ Med) or an equivalent qualification issued by a competent authority in an EEA State (which has the meaning given by the European Specialist Medical Qualifications Order 1995 (S.I.1995/3208) or be an Associate (AFOM), a Member (MFOM) or a Fellow (FFOM) of the Faculty of Occupational Medicine or an equivalent institution of an EEA State.
There are now three tiers of ill health retirement and each employing authority has to determine which band each case should fall into.
Tier 1 - the employer determines that there is no reasonable prospect of the member obtaining gainful employment before normal retirement age and so the member's benefits will be enhanced by 100% of the prospective membership to Normal Pension Age.
Tier 2 - the employer determines that, although the member cannot obtain gainful employment within a reasonable period of leaving local government employment, it is likely that he will be able to obtain gainful employment before normal retirement age and so the member's benefits will be enhanced by 25% of the prospective membership to Normal Pension Age.
Tier 3 - the employer determines that the member will obtain gainful employment within a reasonable period (defined as 3 years) and benefits built up to date can be released, unenhanced but have to be reviewed by the employer within 18 months and again after 3 years. The member will be held responsible for notifying their former employer of when they obtain further employment. If after 3 years the member is still incapable of gainful employment, their case can be reviewed by a qualified occupational health doctor who determines that he should be 'upgraded' to a tier 2 ill health case.
Assumed Pensionable Pay (APP) for ill health retirement or death in service
APP must be calculated by the employer when:
- the employer terminates an active member’s employment on the grounds of permanent ill health with a Tier 1 or Tier 2 ill health pension
- an active member dies in service, or
- a Tier 3 ill health pension is awarded which is subsequently uplifted to a Tier 2 ill health pension.
The APP figure is calculated in the normal way:
- using the average of the pensionable pay for the 12 (weekly) or three (monthly) complete pay periods before the date of termination or death
- the average pensionable pay should include any APP credited in and relating to those pay periods plus any regular lump sums paid in the 12 months before the date of retirement or death.
This APP figure is needed to calculate the amount of the enhancement to the benefits due under the LGPS.
A point to note about APP...Please note there could be a further adjustment to the calculation of APP for members who were working reduced contractual hours in the relevant three (monthly) pay periods. If the Independent Registered Medical Practitioner certifies that the member was working reduced hours wholly or partly because of the condition that caused or contributed to the ill health retirement, the hours reduction should be ignored when working out APP.
APP should be calculated on the pay the member would have received during the relevant pay periods if they had not been working reduced contractual hours.
Ill-Health Retirement for a Former Member
If a former employee applies for their deferred benefits to be put into payment early on ill-health grounds, the employer is required to obtain an opinion from an Independent Registered Medical Practitioner (IRMP) before making a decision. The regulations require that the former employee is assessed in relation to their ability to do the job that they were doing immediately before they left the Scheme. Therefore, it is important to keep records of employees’ duties and responsibilities, usually in the form of a job description.
On receipt of an ill-health retirement request from a deferred member the pensions team will contact the member's former employer to request the ill-health retirement claim is investigated further.
Ill Health bite-sized training modules
The Local Government Association have produced an interactive bite-sized training module covering ill-health retirement for Active and Deferred Scheme members.
Please click on the links below to view the training modules:
Ill Health Retirement Capital Costs
In all cases of ill-health retirement a capital cost is calculated. However this cost is not charged to the employer. It is instead assessed as part of the triennial actuarial valuation of the Fund and is taken into account when determining the contribution percentage that the employer will pay.
Further guidance on Ill-Health retirement can be found by following the links below: