The Aviva representative said: “This is because taking a pension early for health reasons, or ‘ill-health retirement’, is designed to replace the income from employment, due to being permanently incapable of carrying on that occupation through ill-health.
"As [the] client was not employed and receiving an income at the date stated on the ill-health form, they were not eligible for ill-health retirement. This is an HMRC stipulation, and not an Aviva judgement.”
The adviser said the situation has caused their client “anxiety and distress".
Aviva told the adviser the application was incomplete, and in an email to the client stated they may be liable for “substantial penalties".
A client that makes withdrawals from a pension prior to the age of 55 can face a tax liability.
Because Aviva approved the first two withdrawals, the company will now cover any tax liability incurred.
With regard to future withdrawals, Aviva has asked the client for further medical evidence, specifically relating to the year in which the client first stopped being in paid employment.
In its statement, Aviva said this is because the client had ceased their paid work six years prior to making the pension claim, having been declared medically unable to work in that profession at that time, so they want a further medical assessment to make clear the client cannot return to that line of work.
Rachel Vahey, head of public policy at AJ Bell, said the rules around this issue are complicated because HMRC may take the view that a person cannot perform their usual occupation, but can perform another occupation.
She added that while the HMRC rules “help”, the rules of a particular pension scheme are likely to be its own rules.
david.thorpe@ft.com
