The UK Government has announced a review of pension rules for terminally ill people, acknowledging that the current definition of terminal illness is 'clearly outdated'. Treasury minister Lord Livermore confirmed the review in the House of Lords, responding to concerns raised by Labour peer Baroness Martin of Brockley.
Current Rules and Their Limitations
Under existing regulations, individuals with a life expectancy of less than 12 months may access a Serious Ill Health Lump Sum from their private pension. This sum is tax-free for those under 75, up to £1.073 million, with any excess taxed as income. However, Baroness Martin highlighted that many people with terminal diagnoses now live significantly longer—up to 10 years or more—due to medical advances. She noted that for cancer alone, around half of patients survive 10 years or more, compared to just one in four in the 1970s.
Government Response
Lord Livermore said: 'While the current rules are intended to provide flexibility, the Government recognises that the permissive nature of these rules means individuals may experience varying hurdles to access depending on their scheme. The Government wishes to ensure a fair and compassionate approach to allowing access to pension savings in cases of terminal illness, and will therefore now consider this issue in further detail.'
He acknowledged that the current definition 'does not align with wider legislation, including the Department for Work and Pensions (DWP) standard definition', and confirmed the Government will review the rules. He also indicated a desire to standardise the definition across pensions and DWP regulations, stating: 'Although I can’t prejudge it, it would be ideal if there was now one standard definition.'
Impact and Next Steps
Baroness Martin welcomed the announcement, saying: 'It’s encouraging to hear the Government will look again at this important issue. The rules on access to private pensions for terminally ill people were designed for an era when terminal diagnoses often meant death within months, but medicine has moved on.' She urged the Government to ensure access rules 'reflect modern, clinical reality, rather than leaving people who may live for many years with a terminal diagnosis, unable to access funds that are rightfully theirs.'
The review will also examine the varying requirements across individual private pension schemes, which can create additional hurdles. Lord Livermore said the Government will 'examine the access options across these schemes and will consider what changes may be needed to ensure people have appropriate access while safeguarding against the risk of financial hardship later in life.'
