The Labour Party government has announced a review of pension access rules for terminally ill people, following criticism that the current framework is no longer fit for purpose. Treasury minister Lord Livermore conceded that the existing definition of terminal illness is 'clearly outdated' and does not align with wider legislation, including the Department for Work and Pensions' (DWP) own standard definition.
Current Rules and Their Limitations
Under current rules, individuals with a life expectancy of less than 12 months may take a Serious Ill Health Lump Sum at any age, subject to medical evidence and scheme rules. This lump sum is tax-free below age 75, up to £1.073 million, after which it is taxed as income. However, Lady Martin, formerly Rachel Reeves’ chief of staff, noted that some people with terminal diagnoses may live up to 10 years or more, making the 12-month threshold too restrictive.
Lord Livermore acknowledged the difficulties: “While the current rules are intended to provide flexibility, the Government recognise that the permissive nature of these rules means that individuals may experience varying hurdles to access depending on their scheme.” He added that the government wishes to ensure a “fair and compassionate approach” and will now consider the issue in further detail.
Inconsistencies Across Pension Schemes
Individual private pension schemes have their own requirements for terminally ill people to access their savings, leading to inconsistent access. Lord Livermore stated: “That does mean that, too often, individuals experience too many varying hurdles to access, depending on their scheme.” The government will examine access options across these schemes and consider changes to ensure appropriate access while safeguarding against the risk of financial hardship later in life.
Unlike workplace pensions, the state pension can only be accessed at state pension age, with no current plans to change this. However, special benefit rules apply for those nearing the end of life, enabling faster access to certain benefits without medical assessments, and in most cases, the highest rate of benefit. These rules cover five benefits: personal independence payment, disability living allowance, attendance allowance, universal credit, and employment and support allowance.
Government Commitment to Review
Lord Livermore confirmed: “I can confirm that the Government will now review this.” The review will consider aligning the definition with the DWP’s standard definition and addressing hurdles across private schemes. The minister emphasised that the tax-free threshold below age 75, up to £1.073 million, remains unchanged for now.
The announcement follows mounting criticism from campaigners and peers who argued that the current rules are unfair and outdated. The review aims to create a more consistent and compassionate system for terminally ill individuals seeking early access to their pension savings.
