Mercer Warns of Lack of Income Protection for Ill-Health Retirees in UK

A survey of 1,800 UK pension funds found that only 41% of DC plans provided any income protection and only 13% had an ill-health pension. In contrast, a large proportion of final salary plans provide insured benefits for those who retire early for health reasons.

“As companies have increasingly moved from final salary to defined contribution pension arrangements, members have become more financially vulnerable to the effects of ill health,” stated John Matthews, a European Partner at Mercer, in a news release. “Companies with final salary schemes can dip into a large pool of money to pay pensions to members who retire early due to ill health. In defined contribution schemes, each member has an individual pot of money which will rarely be sufficient to pay a decent early retirement pension.”

“Employees are around five times more likely to claim for ill health than they are to die, yet all schemes provide death benefits. More consideration should be given to ill health provision as employees could be left highly exposed,” Matthews continued.

– Kip McDaniel