Don Bramhall, 49, deputy head of the Greater Manchester Fire Service, was said to have told a group of recruits he would "rather be gay than black".
He was due to face a hearing on Monday, but the county fire authority decided that Mr Bramhall was unfit to attend or to work. He will retire with a lump sum payment of pounds 170,000 and a pension of pounds 35,000-a-year.
Mr Bramhall was suspended on full pay last November after allegedly making the comments to a group including black recruit, Curtis McLardie.
Chairman of the Fire Brigades Union in Greater Manchester, Jim McMullen, said: "If Mr Bramhall was too ill to attend, there are procedures to go ahead without him."
County Fire Officer George Almond today apologised to Mr McLardie for distress suffered. Mr McLardie, who is still with the brigade, said: "I don't accept the apologies. The hearing should have gone aheadReuse content