NHS Ill Health Retirement: Tier 1 and Tier 2 Explained

Last updated: 18 October 2026 · Tier rules verified against the NHSBSA ill-health retirement guides; salary figures from the NHS Employers 2026/27 pay circular.

By the NHS Bands Pay editorial team

What ill-health retirement means in the NHS pension scheme

Ill-health retirement is the NHS Pension Scheme's safety net for staff who can no longer work because of a physical or mental condition. It is different from NHS sick pay, which keeps your wages going during absence, and different from redundancy. Sick pay has time limits; ill-health retirement is what the scheme offers when the medical evidence says you will not be returning to work in any meaningful sense.

The headline feature is timing. A normal early retirement before your scheme's normal pension age comes with an actuarial reduction, because the pension will be paid for longer. Ill-health retirement waives that reduction: if the scheme's medical advisers accept your application, you receive your pension from when your employment ends, paid in full as if you had reached pension age. For Tier 2 awards the scheme goes further and tops the pension up, because the member has lost the most working years.

Ill-health retirement ends your NHS employment. It is not an alternative to dismissal on capability grounds, and it is not something you can claim while staying in post. The employment must terminate because of the infirmity, and the scheme must be satisfied that the medical criteria are met. Employers are expected to explore every alternative first: adjustments to your role, redeployment, reduced hours and rehabilitation. An application for ill-health retirement usually comes at the end of that process, not the beginning.

The two tiers at a glance

The scheme awards one of two levels, depending on how severely and how permanently the condition affects your ability to work. The tier decides how much of a boost, if any, your pension receives.

Source: NHS Pensions ill-health guide for employers; NHSBSA: What is a Tier 1 and Tier 2 ill health pension?

Think of Tier 1 as "I can never do my NHS job again" and Tier 2 as "I can never do my NHS job again, and I could not do regular work of the same pattern in any field". Tier 2 is the harder test, which is why it carries the enhancement.

Who qualifies

Three conditions must all be met. First, you need at least two years of qualifying pension scheme membership. Staff with less than two years in the scheme cannot be considered for ill-health retirement, whatever the medical position. Second, your NHS employment must be terminated because of the physical or mental infirmity. Resigning or retiring for another reason, being dismissed for misconduct, or leaving while under disciplinary proceedings will not support an application unless the scheme is satisfied the infirmity was the genuine cause. Third, the scheme's medical advisers must be satisfied that you are permanently incapable in the sense the rules define, for at least Tier 1.

"Permanently" has a precise meaning here: incapable until the scheme's normal pension age. That is age 60 in the 1995 section, age 65 in the 2008 section, and State Pension Age in the 2015 scheme. The advisers decide on the balance of probabilities, looking at the treatment you have received, your physical and mental capacity, any rehabilitation it would be reasonable for you to undergo (whether or not you have undergone it), and any other matter the scheme manager considers relevant. A condition that might improve with further treatment is less likely to be judged permanent than one where all reasonable treatment has been tried.

If you have service in more than one part of the scheme, the rules handle each part separately. Members who moved to the 2015 scheme under the transitional arrangements receive a Tier 1 pension for their 1995 or 2008 section membership, and Tier 1 plus the Tier 2 addition for their 2015 scheme pension. Only one application is needed where there has been no break of more than five years between the periods of membership. Our guide comparing the 1995, 2008 and 2015 sections explains how the different sections fit together.

How a Tier 1 pension is calculated

A Tier 1 award pays exactly what you have earned, nothing more and nothing less. In the 2015 scheme, the main scheme almost all current staff belong to, you earn pension at 1/54th of your pensionable pay each year, revalued with inflation until you retire. A Tier 1 ill-health award simply pays that banked pension immediately, with no reduction for early payment. There is no enhancement for the years you will not work.

A simplified illustration: suppose you have 15 years of pensionable service and your career-average pensionable pay is £36,000 a year. Your earned pension is 15/54 × £36,000 = £10,000 a year, or about £833 a month. Under Tier 1, that £10,000 a year starts when your employment ends, unreduced. (Real calculations use your revalued earnings year by year, so your actual figure will differ; this is an illustration of the maths, not a quote.)

Because the pension is paid early without reduction, Tier 1 is already a valuable concession. A voluntary early retirement at the same age would face an actuarial reduction of several per cent for every year before normal pension age. Ill-health retirement removes that penalty entirely.

The 1/54th accrual and the tiered contribution rates are explained in our main pension contributions guide. One point worth knowing: ill-health retirement is not something you can buy extra cover for through added pension in the way you might expect; the protection comes automatically from membership.

How a Tier 2 pension is calculated

Tier 2 starts from the same earned pension as Tier 1, then adds the enhancement. In the 2015 scheme the enhancement is half of the prospective membership to normal pension age, calculated on your average pensionable earnings during scheme membership, not on your final salary. In the 1995 and 2008 sections the enhancement is two-thirds of prospective membership to normal pension age. Prospective membership is the pensionable service you would have built if you had stayed in the scheme until normal pension age.

Using the same illustration as before: 15 years of service, career-average pensionable pay £36,000, and 27 years of prospective service remaining to normal pension age. The 2015 scheme enhancement is half of 27 years, which is 13.5 years. Total pensionable service for the award is 15 + 13.5 = 28.5 years, giving 28.5/54 × £36,000 = £19,000 a year, or about £1,583 a month. The same member on Tier 1 would receive £10,000 a year, so the Tier 2 enhancement is worth £9,000 a year for life in this example. Again, this is simplified: your real figure depends on your revalued earnings, your exact service and your normal pension age.

Two things make the Tier 2 enhancement generous by design. First, it is based on service you never actually worked, which recognises that the illness has robbed you of your remaining career. Second, in the 2015 scheme the enhancement uses your average earnings across your membership, which for most people is close to their current salary anyway. Members with long service already behind them see a smaller proportional boost than younger members with short service, because the prospective slice is smaller for them.

The three-year reassessment provision

Sometimes the medical advisers are confident about the Tier 1 test but cannot yet be sure about Tier 2. The classic case is a condition where treatment is still under way and might restore some capacity for work, or might not. In those cases the scheme can award Tier 1 with the right to request one reassessment for Tier 2 within three years of the award, or before normal pension age if that comes sooner.

This matters because it stops you losing out twice. Without the provision, a borderline case would be decided once and for all at the worst possible moment, when the medical picture is least clear. With it, you get the Tier 1 pension flowing immediately and a second bite at the Tier 2 question once the treatment outcome is known. The reassessment right is granted at the time of the award; it is not something you can ask for later if it was not included. If your award letter mentions a reassessment provision, keep it safe and diary the deadline.

How to apply

Applications run through your employer, not directly to NHS Pensions. The usual route is that your occupational health team, your line manager and HR agree that ill-health retirement should be explored, and your employer then submits the application to NHS Pensions with supporting medical evidence. The standard application form is the AW33E, accompanied by reports from the doctors treating you and from occupational health.

The decision is made by the scheme's medical advisers, not by your trust and not by your own GP alone. They can reach one of three outcomes: the claim fails, the claim succeeds at Tier 1, or the claim succeeds at Tier 2. A Tier 1 award may carry the three-year reassessment provision described above. The whole process typically takes months rather than weeks, because medical evidence has to be gathered and reviewed carefully. During that waiting period, sick pay and any employer support should continue under their own rules; the application itself does not extend sick pay.

If the decision goes against you, you can challenge it through the scheme's internal dispute resolution procedure. This is a formal two-stage process: first a nominated person at NHS Pensions reviews the decision, then, if you are still dissatisfied, the Secretary of State's office reviews it. Your union or staff-side representative can support you through this, and it is worth getting that support early rather than after a refusal. Keep copies of every medical report and every letter, because a dispute turns on the evidence trail.

What happens to your employment and other benefits

Ill-health retirement ends your contract. You are treated as having retired on ill-health grounds, and your pension becomes payable from when the employment ends. Any outstanding annual leave should be paid up under the normal leaving rules, and you should receive a final payslip showing the pension deductions stopping.

On the pension itself, you have the same choices as any other retiree about how to take it. Most members can exchange part of their annual pension for a tax-free lump sum, and members with 1995 section service may have an automatic lump sum as well. The Tier 2 enhancement increases the pension available to commute, which can make the lump sum option more attractive than it would be on a Tier 1 award. Our pension lump sum guide walks through how the exchange works.

An ill-health pension is taxed as ordinary income through PAYE, exactly like a normal pension. It uses part of your personal allowance and can push other income, such as a partner's earnings reported on a joint assessment or any other pension, into a higher band. Check your tax code when the pension starts, because the code attached to your employment will not automatically follow you into retirement.

Dependants' benefits continue under the scheme rules: if you die after retiring on ill-health grounds, your spouse, civil partner or nominated partner and any eligible children receive the scheme's standard survivor benefits based on your pension. Life cover while in service is a separate benefit that ends with employment, which is one more reason to get independent advice about protection if you have dependants.

Working again after ill-health retirement

This is the area where people most often get into trouble, so the rules deserve plain language. A Tier 1 pensioner can return to NHS employment and rejoin the pension scheme, building further benefits. But the pension may be abated, meaning reduced, if your new NHS earnings plus the ill-health pension take you above the pay level of the job you retired from. The reduction brings the total back down to that previous level. The abatement rule exists because Tier 1 assumes you cannot do your old job; if you are earning at or above your old level in the NHS, the assumption is being tested.

Tier 2 is different. It is awarded on the basis that you cannot do regular employment of like duration in any field, whole-time or part-time. Taking on significant regular work sits uneasily with that award. The scheme allows a small amount of therapeutic work: upper-tier pensioners can earn up to the Lower Earnings Limit for National Insurance in a tax year without losing the pension, which recognises that gentle, limited activity can help people manage their condition. Anything beyond that risks the award.

The practical advice is simple: tell NHS Pensions before you take any work, not after. Voluntary work is generally fine, but paid work, even modest and irregular, should be declared and cleared in advance. An overpayment recovered later, with interest, is a miserable outcome that a short phone call can prevent.

Ill-health retirement and the McCloud remedy

Many current staff have pensionable service spanning the old and new schemes because of the 2015 reforms and the McCloud remedy, which gave eligible members a choice of legacy or reformed benefits for the 2015 to 2022 remedy period. For ill-health retirement, the split is handled mechanically: older-section service is assessed under the older section's rules, and 2015 scheme service under the 2015 scheme's rules. That is why a member with both can receive a Tier 1 pension for the 1995 or 2008 section service alongside Tier 1 plus the Tier 2 addition for the 2015 scheme service.

If you are in the remedy cohort, get advice before applying. The choice of benefits for the remedy period can change the total, and the interaction with an ill-health award is exactly the kind of detail where a pensions adviser or your union's pensions specialist earns their fee. Our comparison of the 1995, 2008 and 2015 sections is a starting point, not a substitute for advice.

Frequently asked questions

How long do you need to be in the NHS pension to qualify for ill-health retirement?

You need at least two years of pension scheme membership. Your NHS employment must also have ended because of the physical or mental infirmity, and the scheme's medical advisers must be satisfied you meet the permanence test for at least Tier 1.

What is the difference between Tier 1 and Tier 2 ill-health retirement?

Tier 1 pays the pension you have already built up, with no early-payment reduction and no enhancement, when you are permanently unable to do your own NHS job. Tier 2 adds an enhancement on top when you are also permanently unable to do regular employment of like duration. In the 2015 scheme the enhancement is based on half of your prospective membership to normal pension age; in the 1995 and 2008 sections it is two-thirds.

Can I get ill-health retirement if I have already left the NHS?

Former staff with deferred benefits can apply for ill-health retirement and, if accepted, receive their benefits unreduced for early payment, but deferred members cannot receive the Tier 2 enhancement. Keep your contact details and medical evidence with the scheme if you leave with deferred benefits.

What happens if my ill-health retirement application is refused?

You can ask for the decision to be reconsidered through the scheme's internal dispute resolution procedure. Where the medical outlook is uncertain, for example if treatment might restore some capacity, the award can be made as Tier 1 with the right to request one reassessment for Tier 2 within three years.

Can I work again after taking NHS ill-health retirement?

A Tier 1 pensioner can rejoin the scheme in further NHS employment, but the pension may be reduced, known as abatement, if pension plus new earnings take you above your previous NHS pay level. Tier 2 is awarded on the basis that you cannot do regular work of like duration, so significant work would call the award into question.

Is an ill-health pension taxed?

Yes. An ill-health pension is taxed as ordinary income through PAYE, just like a normal NHS pension. It uses up part of your personal allowance and may push other income into a higher tax band, so it is worth checking your tax code when the pension starts.

Does ill-health retirement affect my pension lump sum?

You have the same lump sum choices as any other retiree: you can usually exchange part of your annual pension for a tax-free lump sum, and 1995 section members may have an automatic lump sum. The enhancement on a Tier 2 award increases the pension you can commute.

What does permanently incapable mean for ill-health retirement?

Permanently incapable means until the scheme's normal pension age: age 60 in the 1995 section, age 65 in the 2008 section, and State Pension Age in the 2015 scheme. The medical advisers decide on the balance of probabilities, taking account of treatment received, your physical and mental capacity, and any rehabilitation it would be reasonable to undergo.

Sources

Source: NHS Pensions ill-health guide for employers.

Source: NHSBSA: What is a Tier 1 and Tier 2 ill health pension?

Source: NHSBSA: Ill health retirement tiers and FAQs.