Pension schemes typically provide some form of cover or compensation for employees who suffer permanent incapacity or ill health before normal retirement age. For the majority of public and private sector schemes, this takes the form of an immediate payment of a pension and a lump sum. A contingent ill health retirement pension is in effect part of an employees remuneration package.
Ill health retirement was a rarity in the 1970s. But during the 1980s and 1990s the incidence of ill-health retirement grew, particularly in the public sector. By the mid-1990s about 40,000 public servants were retiring early each year on medical or injury grounds. The incidence has now fallen from this peak to about 22,000 per year but this is still high by historical standards, and considerably higher in many parts of the public sector than in the private sector. Within these numbers, there are very wide variations both between the rates of ill health retirement in different sectors, and between employers in the same sector. For example, on current performance, ill health typically accounts for 39% of all retirements in the police service, 39% in local government and 22% in the civil service. And within the fire service, rates of early retirement on ill health grounds vary between 11% for some fire authorities and 93% for others.
Some of these differences can be explained. A relatively high level of ill health retirement is only to be expected in areas of work such as the fire service where the physical demands are much greater than in other careers. But the large variations in performance, in particular between employers in the same sector inevitably raises questions, as does the continuing high incidence overall of ill health retirement in the public sector.
It is important to address these questions. Ill health retirement has a heavy cost: financially for the taxpayer (the estimated capitalised additional pension costs of new cases is around one billion pounds annually), but also for employers who may be losing skilled staff, and employees whose lifetime earnings are curtailed by early retirement.
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