A decision of the Pensions Ombudsman confirmed that an employer should have proactively considered an employee for ill health retirement when it dismissed him on grounds of ill health. The employer did belatedly consider ill health retirement but its mishandling of the process saw the employee paid compensation of £1,000 for serious distress and inconvenience following multiple complaints by the employee.

In this case, the member was employed by a county council (the employer) and was a member of the local government pension scheme (the LGPS).

In December 2017, the member’s employment was terminated on the grounds of ill health. At that time, the member did not pursue ill-health retirement because his GP did not support his ill-health retirement.

However, he later applied for ill-health retirement in November 2018. By that point, he was no longer an active member and so was not eligible to take ill-health retirement as an active member (which can result in enhanced benefits).

The member complained under the LGPS internal dispute resolution procedure (IDRP). The adjudicator held that it was the employer’s responsibility to start the ill-health retirement process and not wait for the employee to apply. Following this decision, the employer did consider the employee for ill-health retirement and awarded him 'tier three' benefits.

Tier three is awarded when the member is likely to be capable of undertaking gainful employment within three years of leaving the employment or before normal pensionable age if earlier. The benefits available under tier three are not enhanced, unlike those that would be awarded under other tiers one and two.

The member then made further complaints under stages one and two of the IDRP. The adjudicator at stage one decided that the employer had not properly considered the decision and should reconsider. The employer re-considered and reached the same conclusion. The employee complained again and at stage two the adjudicator again decided that the employer should re-consider. The employer re-considered and again reached the same conclusion. The employee then applied to the Pensions Ombudsman.

The Ombudsman held that:

• There had been maladministration on the employer’s part for failing to instigate the ill-health retirement process and in its lack of clarity with the employee about the process. There was also maladministration for the delay in dealing with the member’s complaint and failing to provide reasons for their decision to award him tier three benefits.
• However, the employer’s decision regarding the member’s tier three eligibility had been properly made. It was reasonable for the employer to rely on the medical evidence it obtained, which suggested that, at the time of his dismissal, the member’s condition was likely to improve within three years or before his normal pensionable age.

The case illustrates the importance of carefully managing an employee’s exit on the grounds of ill health and ensuring that members are informed about the process and timing of any application for ill-health retirement. In particular, employers should:

• Proactively consider employees for ill health retirement when dismissing on grounds of ill health
• Provide employees with clear information
• Progress decisions in a timely way
• Give reasons for their decisions

For further advice and support on ill-health retirement, please contact Doug Mullen.