People with a terminal illness will find it easier to access their private pension savings under changes announced today. The definition of terminal illness used for pension tax purposes will be updated.
At present, people are required to provide medical evidence that they are expected to live for less than one year. Moving forward, there will be a "slightly more flexible test" that death can reasonably be expected within 12 months. This brings pension tax rules more in line with the 12-month end-of-life definition already used by the Department for Pensions (DWP).
Minister says rules will be clearer and more consistent
Minister for Pensions 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."
Marie Curie welcomes changes
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. 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."
"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."
Current rules on terminal illness withdrawals
If you are under age 75 with less than 12 months to live, you can normally withdraw a defined contribution pension pot as a tax-free lump sum if it is worth less than £1,073,100. Those over the age 75 with a terminal illness are normally taxed at their marginal income tax rate on withdrawals and lump sums.
For those without a terminal illness, you can withdraw up to 25% of your pension tax-free from the age of 55, and then you are charged your normal income tax rate on the remaining 75%. The minimum pension age is rising to 57 from April 2028.
