Sole traders and self-employed persons are usually conscious that continuing good health is a crucial aspect of their ability to run and manage their business. They understand that ill health would seriously affect their income. Because of reduced State benefits in the event of illness or accident, they need some form of income protection insurance. Many rely solely on being able to access their pension on grounds of ill health before retirement age.

Accessing pension benefits early will depend on the type of pension scheme in place because there are different definitions of ill health and different benefits payable depending on the type of pension. Generally, it is difficult to satisfy the Revenue definitions of ill health in order to access your Pension before normal retirement age.

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 the person from carrying on their normal employment. Ill health is not allowed in cases such as a decline in energy levels or ability.

In a Personal Pension or PRSA, the definition of ill health is slightly different. It requires the individual to be permanently incapable through infirmity of mind or body from carrying on their own occupation or any similar occupation for which they are trained or suited. This is quite a restrictive definition.

Even where a person meets the required definition of ill health, another factor to consider is the size of the pension fund and the benefits it will provide. In order for it to be worthwhile accessing pension benefits early, the pension fund would need to be worth a considerable sum of money. It is unlikely that a person in their 40s you would have built up sufficient funds to take care of their income needs for a further 40 years.

It is important therefore to have a separate tailored Income Protection policy in place to cover ill-health and allow the pension plan to provide income in retirement when the disability payments cease.