Managing the cost of ill health retirement

Assessment of ill health retirement applications is a process that attempts to award a pension to a deserving case, whilst protecting a financially vulnerable pension fund from claims by employees who are medically fit for work or are likely to become so.

Why do organisations pay out when they don't need to?

Organisations need to ensure that ill health retirement pensions are given to deserving cases, whilst protecting a vulnerable scheme from inappropriate claims.

The ultimate decision on whether ill health retirement is offered to an employee, should always be made by the pension trustees. Often companies will leave the decision of whether an employee should retire on the grounds of ill health to their company doctor (who may or may not be an occupational health physician). In these instances there is a great potential for inconsistency and rates of retirement for medical reasons have been measured to vary more than 10 fold.

In cases where an independent medical opinion is required by the pensions board, this should come from an occupational health physician who is independent of your company and of the treatment of that particular case. BUPA Wellness has the resources to provide qualified occupational health physicians nationwide to undertake such work.

How can BUPA Wellness help?

Whenever we are asked to provide an independent medical opinion, we strive to put employers in a position to make informed decisions, whilst maintaining client confidentiality.

We are aware of the difficulties faced by organisations and the stress that can arise in individuals. We can help by:

• establishing clinical and medical early eligibility criteria
• defining circumstances when individuals could return to work
• reviewing individual claims for early ill health retirement
• offering advice to trustee committees

A BUPA Wellness occupational health physician reviews a paper-based assessment for each claimant and where necessary contacts their GP or specialist consultant, with the claimant's permission, for further information and/or interviews the individual.

With the claimant's prior written consent, the BUPA occupational health physician then reports back to the pensions trust with medical information to enable the organisation to determine an individual's eligibility for ill health benefits.

Since the introduction of our occupational health intervention, one client says they are now experiencing a 50 percent reduction in applications for ill health retirement.

Why is there a need to manage the cost of ill-health retirement?

For a worker retiring after 40 years' service on a salary of £30,000 to be guaranteed a pension of £20,000 a year, a monthly contribution of £250 a month for 40 years is needed.

The concern is that pension fund assets will not match the promise to pay a set income on retirement. UK pension schemes are currently about £120 billion short of the sums they need to pay all promised benefits, with the average scheme being only 80 percent funded and more than 200 schemes are winding-up.

Often companies will leave the decision of whether an employee should retire on the grounds of ill health to their company doctor (who may or may not be an occupational health physician). In these instances there is great potential for inconsistency of advice regarding ill health retirement for medical reasons. This can lead to:

• undeserving cases being awarded a pension
• cases not being reviewed (even if an individuals health improves)
• cases being reviewed that do not need to be (eg a permanent medical condition that is not going to improve)
• challenges to the trustees decision

Our range of services

We can offer a fully integrated service or help with individual aspects of the pensions process such as:

• advice to review a pension fund's eligibility criteria
• initial assessment of applications to join the pension scheme
• initial assessment of applications for ill health retirement pensions
• review of a member's ill health
• medical appeal hearings

Further studies

Three studies covering the period 1985 to 1995 noted an increase in ill health retirement applications and retirement on the grounds of ill health. This increase has continued during recent years.

• Study 1 of six UK organisations revealed that an inproportionate number of people retired due to ill health after 10 and 27 years' service compared to other lengths of service. Within these organisations benefits are enhanced at 10 and 27 years and there is no medical reason why ill health should peak at these times. (Poole, C J M; "Retirement on grounds of ill health: cross sectional survey in six organisations in United Kingdom"; BMJ 1997;314:929 (29 March)).
• Study 2 of patients who had undergone coronary artery bypass grafting showed that most retired for social, financial, or psychological reasons rather than for medical reasons. (Monpere C, Francoise G, Rondeau du Noyer P, et al; Return to work after rehabilitation in coronary bypass patients. Role of the occupational medicine specialist in rehabilitation. Eur. Heart. J1998;9: 48 - 53).
• Study 3 showed that four percent of back pain sufferers retire early but there is no demonstrable difference in pathology between those who retire early and those who keep working. (Greenhough C, Fraser RD, Assessment of outcome of patients with low back pain. Spine.1992;17:36 - 41); and (Magora A, Schwartz A, Relation between the low back pain syndrome and X-ray findings. Scand. J. Rehabil. Med. 1976;8:115-1125).