The government led by Prime Minister Andy Burnham has announced new measures to make it easier for people with a terminal illness to access their private pension savings earlier. The reforms are expected to come into effect next spring.
New definition for terminal illness
Under the proposals, the definition of a terminal illness used for pension tax purposes will be updated. The current strict requirement demands medical evidence showing a life expectancy of less than one year. This will be replaced with a slightly more flexible test of whether death can reasonably be expected within 12 months.
The reforms are aimed at reducing inconsistencies between private pension regulations and the wider welfare and benefits system, where accessing financial support during end-of-life care is often subject to fewer administrative hurdles.
Reducing financial stress
According to ministers, accessing private pension savings quickly can significantly ease financial stress for individuals and families dealing with the impacts of a terminal diagnosis.
Pensions minister Torsten Bell said: "When someone is facing a terminal illness, they shouldn’t have to go through red tape to get at their own pension savings. That’s why we’re making the rules clearer and more consistent, so that people can access their own money when they need it the most."
Support from charities
The government said the success of automatic enrolment means nearly 90% of eligible employees are saving into a workplace pension.
Dr Sam Royston, executive director of research and policy at Marie Curie, said: "Marie Curie’s 'dying in poverty' research has long highlighted that a terminal diagnosis can have a sudden and significant impact on a household’s finances, as income drops and other costs increase."
"We therefore warmly welcome steps to make it easier for people who are terminally ill to access their private pension savings," he added. "These changes can help provide greater security and reduce financial stress at a time when people should be able to focus on whatever matters most to them, rather than worrying about how to make ends meet."
Dr Royston continued: "We look forward to working further with the department to ensure these changes are implemented in a way which provides additional support to lower income households on universal credit."
The government has said it expects to engage with pension providers and others on the operation of terminal illness lump sum payments and whether further changes are needed.
