Estimates of pre-morbid IQ are widely used to measure the trajectory of cognitive function and decline in people with schizophrenia. This study examined the usefulness of two indices of decline to identify cognitive subtypes in first episode psychosis, and to determine the specificity of non-IQ neuropsychological impairments in this population. Neuropsychological data were collected from 118 first episode psychosis patients and compared to 118 epidemiologically matched controls. The National Adult Reading Test (NART) and the Information subtest of the WAIS-III were compared as indicators of crystallised intelligence or ‘pre-morbid IQ’. Measurement of NART minus current full scale IQ (FSIQ) (where 10 points discrepancy is the decline criterion) did not reveal a large group of individuals with ‘deteriorating’ IQ patterns. Using the Information subtest and the same decline criteria, a ‘deteriorating’ patient group emerged (36%) but was matched by a larger ‘deteriorating’ control group (45%). The ‘deteriorating’ patient group performed at a low IQ level for tasks that loaded highly on performance ability but a relatively high level for tasks measuring verbal skills. Verbal memory discriminated patients from controls better than IQ. Compared to controls, patients showed large selective impairments of verbal episodic memory (effect size, d=1.4) These data suggest that in first episode populations, caution should be exercised in inferring deterioration of IQ from discrepancies between reading-based and other IQ tests. Rather, sub-groups of patients and controls do show greater verbal aptitude in comparison to performance skills. Memory is generally impaired in first episode patients regardless of IQ.