The Department for Work and Pensions (DWP) has announced a new '12 months' rule for accessing and spending private pensions. Under the plans, the definition of terminal illness used for pension tax purposes is set to be changed to help give people easier access to their private pension savings.
The age at which you can take money from your private pension pot depends on your pension scheme's rules, but it is usually after age 55. In some cases, you might be able to get higher payments if you need to take your pension early due to ill health, and if your life expectancy is less than a year, you may be able to take your whole pension pot as a tax-free lump sum if you meet certain requirements.
New definition from spring 2027
A terminal illness is usually defined as a serious illness where your life expectancy is less than one year, and under current rules, there is a requirement for medical evidence to show that someone is expected to live for less than a year. But from spring 2027, this definition is set to be changed to the slightly more flexible test that death can reasonably be expected within 12 months.
The government said being able to access private pension savings can help to ease financial pressures for people dealing with a terminal illness, and this new definition will help to make this easier.
Minister and charity respond
Torsten Bell, Minister for Pensions at the DWP, 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.”
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.”
Royston 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. 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.”
Implementation and minimum pension age
The changes are expected to take effect in spring next year and will come alongside reforms to reduce differences between pension rules and the wider benefits system. The government said the success of automatic enrolment means nearly 90% of eligible employees are saving into a workplace pension. The government expects to engage with pension providers and others on the operation of terminal illness lump sum payments and whether further changes are needed.
The normal minimum pension age (NMPA) in the UK is due to rise from 55 to 57 from April 6, 2028, meaning anyone born on or after April 6, 1973, will have to wait until they reach age 57 to access their private pension, unless they have a pension with a lower Protection Pension Age. Those born before April 6, 1971, will be unaffected by the NMPA increase as they will already be 57 by the time the change takes effect on April 6, 2028.
If you're born between April 6, 1971 and April 5, 1973, you'll reach age 55 before the age increase takes effect, meaning you'll fall into a transitional period. HMRC has confirmed that it intends to allow these people access to their pension benefits at any time from their 55th birthday up to April 5, 2028. After April 6, 2028, they will only be able to continue to take benefits from the funds they've already started to access, but may not be able to take any additional benefits until reaching the new minimum pension age of 57.
