Your private pensions

If you have or have had cancer, you may decide to take time off work, reduce your hours, or stop working. You may be able to retire and claim your private pension early because of ill-health. This can affect how much money you are paid.

This information is about accessing private pensions.

For information on how early retirement affects your State Pension, visit

Changes to your work situation

You may need time off work to have tests, appointments and treatments. Some people stop working during cancer treatment and for a while after until they feel ready to go back. Others carry on working, perhaps with reduced hours or changes to their job.

If you are employed and use your holiday allowance to take time off, your pension is not affected.

If you are unable to use your holiday allowance, there are different ways your pension could be affected:

  • Sick pay
    If you are getting sick pay you could continue to pay into your pension as normal, but this is not always the case. Employers have different sick pay schemes. The legal minimum for employers to pay is Statutory Sick Pay (SSP). This is currently £92.05 a week, for up to 28 weeks. There are different rules for agricultural workers. It may not pay enough to cover your pension contributions. But some employers offer more generous sick pay in addition to SSP. This is called occupational sick pay, or company sick pay.
  • Reduced hours
    If you reduce your working hours and are paid less, this will probably reduce your payments towards your pension.
  • Stopping work
    If you stop working and stop paying money into your pension, your final pension will be smaller.

In any of these situations, exactly what happens depends on your work contract and the rules of the pension scheme. To check whether your pension will be affected by time off or reduced hours, talk to:

  • your employer
  • the human resources (HR) department at work
  • the pension scheme manager.

It is also worth checking whether you have any extra benefits with your pension policy. They could help you keep up your pension contributions.


When you started your pension, you may have bought a type of insurance that would keep building your pension if you cannot work. This may be called:

  • pension-contribution protection benefit
  • a waiver of contribution benefit
  • a waiver of premium benefit.

Talk to the scheme provider if you want to check this.

Early retirement due to ill health

If you have or have had cancer, you may be able to retire and claim any private pensions early because of ill health. Your illness usually has to be permanent and stopping you from working. It depends on the rules of your pension scheme.

You will not be able to claim your State Pension until you reach State Pension age.

If you have a defined contribution scheme

  • Lump sums

    You can choose to take all your pension savings in one go. You get 25% of your savings tax-free and you pay tax on the rest as income unless you are accessing it due to serious ill health.

    Or you can choose to take out some of your savings as smaller lump sums. While you have enough money, you can do this as many times as you like. For each lump sum, 25% is tax free and the rest is taxed as income.

    Taking lump sums early means you will have less retirement income later.

    If you have other income, taking a big lump sum from your pension may push you into a higher Income Tax band. For example, you may have other income from investments, renting out a property or a part-time job. A lump sum could also affect any means-tested benefits you are getting, or could become entitled to.

    If you would like to keep saving into the pension, you will have a reduced annual allowance of £4,000. The annual allowance is the amount that can be paid into a pension in a tax year and still get tax relief. This is called money purchase annual allowance (MPAA).

  • Flexi-access drawdown (adjustable income)

    You can choose to invest your pension savings in a fund that gives you a regular, but adjustable, income. You can also take lump sums from the fund whenever you like. This option is a financial product called flexi-access drawdown or adjustable income.

    When you move your savings into a flexi-access drawdown fund, you can take up to 25% of your pension savings as a tax-free cash lump sum. Any lump sums or income you take after that will be taxed.

    Not all schemes offer flexi-access drawdown. It is possible to change to a provider that does offer this option. You may have to pay a fee.

    Flexi-access drawdown is not guaranteed, as you may run out of money. This can happen if:

    • you take out too much of your pension savings
    • you live longer than expected
    • your investments perform badly.

    If you would like to keep paying into the pension, you will have a reduced annual allowance of £4,000. The annual allowance is the amount that can be paid into a pension in a tax year and still get tax relief. This is called money purchase annual allowance (MPAA).

  • Annuity

    An annuity is a type of financial product. You get a regular, guaranteed income for the rest of your life. You buy it in exchange for some, or all, of your pension savings. You can also choose to provide an income for someone else. For example, you might do this if you think you may die before them.

    If you have or have had cancer, you may qualify for an impaired-life annuity. It usually pays out more than a normal annuity to people with an illness that could reduce their life expectancy. If you do not qualify for an impaired-life annuity, you may qualify for an enhanced annuity. This pays more to people with particular lifestyles or health conditions who may not live as long.

    When you buy the annuity, you can also take up to 25% of your pension savings as a tax-free, cash lump sum. You will pay Income Tax on money you get from the annuity.

    The annuity rate you are offered depends on how much you have in your pension pot and whether you want the income to increase each year.

    Unlike flexi-access drawdown, there is no risk of running out of money. The income is guaranteed for the rest of your life. Whether an annuity offers good value depends on a number of factors. These include the rate you are offered, how long you live, and the death benefits available.

    Your pension scheme may offer you its own annuity policy, but this will not necessarily be the best option for you. You have the option of buying your annuity elsewhere to get a higher income. This is called the open market option.

    Visit Pension Wise for information on how to find the best annuity product. The Money Advice Service also has an online tool that can be a good starting point when looking for annuities. But remember that health conditions can affect the rate of an annuity and may mean it pays more.

Which is the best option for you?

The best option for you depends on:

  • the size of your pension savings
  • how much income you and your loved ones need to live on and whether you want to leave any savings to your beneficiaries
  • how you feel about investment risk
  • whether you have any income from other sources
  • your health and how long you expect to live
  • whether you get any income-related state benefits – these may be affected depending on how you choose to take your pension.

You do not have to choose just one option. For example, you might use part of your savings to buy an annuity and leave the rest in an adjustable income fund. This could give you a secure income and lets you use the rest of your savings when you need it.

A financial guide will help you consider your options. You can speak to a Macmillan financial guide for free by calling 0808 808 00 00.

If you have a defined benefit scheme

A defined benefit scheme is a type of pension. They are nearly always arranged by your employer. It means they give you a pension when you retire. This can also be called a final salary scheme or career average scheme.

If you have a defined benefit scheme, you can access your pension when you retire. This is usually between the ages of 60 and 65, unless you have ill health. This can vary, depending on your employer and your pension scheme. You get a lump sum and a regular income for the rest of your life.

How much you get depends on:

  • your salary
  • how long you have worked for your employer
  • the rules of your pension scheme.

If you have a defined benefit scheme, you may be able to transfer to a defined contribution scheme, which gives you more flexibility when accessing your pension. But this is only beneficial in some circumstances. Get financial advice if you are thinking about transferring. You can find out more about transferring your pensions at

Claiming your pension early

If you have a defined benefit scheme and claim your pension early due to ill health, it may give you less money. This is because there is less time for the pot of money to grow. Some schemes give you the same money, and others could pay more. This depends on the rules of the scheme.

If you qualify for ill-health early retirement, your pension scheme will tell you what your options are. You should also speak to an independent pensions adviser before you decide.

If you have a small amount of pension savings

You may be able to take all your defined benefit pension as a lump sum if:

  • you are aged at least 55 (or under 55, if you have ill health)
  • the total value of your pension fund or funds is no more than £30,000.

You can take 25% of your pension tax-free. The rest is taxed as income.

Tracing your pensions

The Pension Tracing Service can help if:

  • you have lost track of pensions you used to pay into
  • you do not know the details of the schemes you used to pay into.

It is a free service that can find lost pensions for you. It can also give you details of the pension provider. But it cannot tell you how much the pension is worth.

Claiming if your life expectancy is less than 12 months

If you have a life expectancy of less than 12 months, you may be able to take serious ill-health retirement. You will usually get the whole of your pension as a one-off lump sum.

Things to think about

  • If you are aged under 75 – the whole sum is usually tax-free. In this case, a registered medical professional must give evidence to the scheme administrator that your life expectancy is less than 12 months.
  • If you are aged 75 or over – 25% of the lump sum is tax-free and the rest is taxed as income.
  • If you have taken a lump sum – this could affect any means-tested benefits you are getting.
  • If you choose to take serious ill-health retirement – you might use all of the money you have saved. This means there would be no benefits payable to your beneficiaries after you die. This depends on the rules of the scheme.
  • If you were to die before taking your pension – before choosing to take serious ill-health retirement check the 'death benefits' payable to your beneficiaries if you were to die before taking your pension. For example, if you die while employed, your pension scheme may pay out a lump sum called death-in-service.
  • If you were to die after taking your pension – any money you take from your pension, but do not spend or give away before you die, becomes part of your estate. Your estate is the money, possessions and property you leave behind. We have more information about passing on your pension benefits.

You should speak to a financial guide to make sure you choose the best option for you and for people who are financially dependent on you.

You can call the Macmillan Support Line on 0808 808 00 00 and speak to our financial guides about pensions and inheritance tax.