How members' mental health issues affect pension schemes

When an employee’s physical or mental health is bad enough to stop them from working, a pension can be taken out early. However, this may make things complicated for employers with hybrid schemes.

One wonders whether, with rising salaries, employers are demanding more from their workforce

Adrian Humphreys, JLT Employee Benefits

Ian McQuade, director at consultancy Muse Advisory, said: “Where there are ill-health provisions in [defined benefit] trust deed and rules, the eligibility criteria in relation to the ill-health… are much more difficult for a medical examiner to test against when it comes to mental health issues."

However, he said he doubted that many ill-health pensions are paid out on account of mental illness. 

When dealing with requests for early pensions due to health reasons, it is important to always read the rules and follow due process to the letter, McQuade said.

If this does not happen and someone is denied an early ill-health pension, the chance of the decision being contested and the trustee losing is high, he added.

Employee relation issues

With most employees now being enrolled into defined contribution schemes, unless an employer puts in place a long-term income insurance protection for its employees, they do not have the same protection as DB members.

“Where there is still a mix of DB and DC employees within the same firm this can cause employee relation issues, and some people who are ill and really should be taking time out to recover end up feeling that they have to work because they cannot afford not to,” he said.

McQuade said that some employers with hybrid schemes have addressed this issue “by continuing to provide ill-health pensions to DC members if they meet the same criteria that would apply to the DB members”; this can be funded through an additional employer contribution to the scheme.

Rising salaries, rising stress

A recent survey conducted by JLT Employee Benefits to mark World Mental Health Day on October 10 found that more than half of the people that took part in the poll believe work is the biggest cause of stress in their lives.

“One wonders whether… with rising salaries… employers are demanding more from their workforce,” said Adrian Humphreys, head of group risk and healthcare at JLT Employee Benefits.

There is a chance that this “is actually starting to crank up stress in the workplace”, he said.

Humphreys said that “old-fashioned risk assessment systems have suddenly done a quantum leap forward”, enabling employees to easily and regularly monitor their stress levels, for example.

Humphreys said that companies are starting to become interested in this type of system because it can help solve problems such as absenteeism and the costs relating to health insurance and ill-health early retirement.

Has the problem reached a tipping point?

Richard Butcher, managing director at professional trustee company PTL, said ill-health early retirement “can certainly be an issue for pension funds, but not very many”, he said.

It has no impact on a DC scheme, for example, because a DC scheme pays out what is in the pot, irrespective of the medical conditions of the member.

With regard to workplace wellbeing in general, a number of employers, including The Pensions Regulator, have already signed up to mental health campaigns such as Time to Change, which is run by charities Mind and Rethink Mental Illness. 

Emma Mamo, head of workplace wellbeing at Mind, said employers are becoming increasingly aware of the impact poor mental health of employees has on their business.

“We’re now at a tipping point, with many employers beginning to grasp the sheer scale of the problem, and the costs associated with not taking staff wellbeing seriously enough.”