Importance of a policy to cater for ill health before retirement
Q. AS A business owner in my early 40's I am conscious that my health is a crucial aspect of my ability to run and manage my business and that the effects of ill health would seriously affect my income. I do have a defined contribution pension and am wondering if this could be accessed before retirement on the grounds of ill health? A . The rules and regulations surrounding this issue are quite varied and complex, but I will give you a general overview of your situation. Firstly, it depends on the type of Pension scheme you have in place as there are different definitions of ill health and different benefits payable depending on whether you are a member of a company occupational scheme or if you have some form of Personal Pension or PRSA.
There are also specific rules with regards to a business owner who has more than a 20% shareholding in the business. As a general rule or thumb, it is very difficult to satisfy the Revenue definitions of ill health in order to access your Pension before normal retirement age.
Company Pension Scheme: Ill health early retirement under a company pension scheme has been defined by Revenue as involving a physical or mental deterioration which is serious enough to prevent an employee from following his normal employment. Ill health is not allowed in cases such as a decline in energy levels or ability. The Revenue definition is quite comprehensive and is potentially wider than many commercial definitions of disability.
Personal Pension or PRSA: If you have a Personal Pension or PRSA in place the definition of ill health is slightly different again. It requires the individual to be permanently incapable through infirmity of mind or body of carrying on his own occupation or any occupation of a similar nature for which he or she is trained or fitted. Again this is quite a restrictive definition as it requires an individual to in effect be incapable of working again.
In both of the above scenarios, and in the event that you meet the required definition of ill health, the other factor to consider is the size of your pension fund and the benefits it will provide for you. In order for it to be worth your while to access your Pension early, you would need that Pension fund to be worth a considerable sum of money. It is unlike-
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ly that in your 40s you would have a Pension fund built up that will take care of your income needs for a further 40 years for example.
As you can see, there are many restrictions and hurdles that you have to cross in order to access your Pension early on grounds of ill health. I would recommend that if this issue is important to you, you should have a separate tailored income protection policy in place to cater for this eventuality.
My advice would be to keep your pension plan in place for the purpose for which it was intended, your retirement, and set up an Income Protection policy to cater for ill health before retirement. Wexford IFA in Association with Ensor O'Connor Solicitors/ RDA Accountants Inheritance & Transfer Seminar, Riverside ParkHotelEnniscorthy,Thursday13thOctoberat 7pm Jim Doyle ACMA QFA is a partner in RDA Accountants offering full accountancy, business advisory, tax advisory and financial services. RDA Accountants | 5 Upper George Street, Wexford | Louisville House, Waterford Road, Kilkenny | 053 91 70507 | www.rda.ie RDA Wealth Ltd trading as RDA Accountants is regulated by the Central Bank of Ireland