In most cases, a normal NHS retirement pension may be accessed from age 60. The pension paid is based on the number of years’ service and consists of a lump sum at retirement, plus an annual amount thereafter until death.

Staff who are awarded early retirement on the grounds of ill-health can access their pension and lump sum early. The amount of pension and lump sum paid is based on the number of years of service plus enhancements. If the retiree has at least 5 years’ service, they are eligible for these enhancements which take the form of additional years of service. The level of enhancement is based on the retirees actual number of years of service and age. For instance, the ill-health retirement pension of an NHS employee with 20 years’ service will be based on their 20 years plus an enhancement of 6²/₃ years, as long as this does not exceed the number of years they would have reached had they continued to age 60. So an employee age 55 with 20 years’ service would have their service enhanced by only 5 years, to that reached at age 60.

For the purposes of this paper, we calculated the additional sum paid by the pensions agency for our cohort taking early retirement because of ill-health, on the following:

• lump sum enhancements

• early pension payments (before age 60)

• enhancements to the final pension (after age 60)

Below are listed the assumptions we used in estimating direct costs of ill-health retirement to the NHS Pensions Agency:

• the mean age and length of NHS employment in our sample were representative of all NHS staff retired in 1998/9

• ill health retirement pension will be paid from age of retirement up to 60 years, followed by normal pension paid for a further 10-year period (cut-off point arbitrarily set at 70 years of age)

• all retirees were considered to have made pension contributions for the full duration of their employment in the NHS

• the enhancements to the lump sum and pension were calculated based on the extra 6²/₃ years added to the employee’s actual length of NHS service (standard procedure used by the Pensions Agency for our sample means of 21.2 years of service and age 51.6 years old )

• a mid-range annual salary at ill-health retirement was assumed for each occupational group: doctors/surgeons, £60K; nurses/midwives, £17.5K; technical/professional staff, £22K; administration/estates, £15K; healthcare assistants, £10K; ancillary staff, £8K; ambulance workers, £10K

• final costs due to IHR are made up of lump sum enhancements, early pension payments (before 60 years), and enhancements to the final pension (after 60 years)

• future costs were adjusted for an annual inflation rate of 3%.