The Department for Work and Pensions (DWP) has confirmed it will review the pension access rules for people with terminal illnesses, responding to growing concerns that the existing framework no longer meets their needs. This announcement follows Treasury minister Lord Livermore’s admission that the official definition of terminal illness is outdated and creates unnecessary barriers for individuals seeking early pension access.
Currently, individuals with a life expectancy of less than 12 months may withdraw a Serious Ill Health Lump Sum from their pension schemes, subject to medical evidence. This sum can be taken tax-free up to the age of 75, with a maximum limit of £1.073 million. However, the rules vary widely across different private pension schemes, often causing confusion and difficulties for those trying to access their funds.
Lord Livermore highlighted the need for a “fair and compassionate approach” and confirmed that the government will closely examine access options across all pension schemes. The review aims to ensure that those with terminal conditions can access their savings in a way that is both timely and considerate of their circumstances, while also protecting individuals from financial hardship later in life.
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The minister noted that the current definition of terminal illness does not align with other government standards and legislation. Some individuals with terminal diagnoses may live significantly longer than 12 months, sometimes up to 10 years, which the current framework fails to adequately address. This has prompted calls for the rules to be updated to better reflect these realities.
It’s important to note that while private and workplace pensions have some flexibility for early access, the state pension remains accessible only at the state pension age, with no plans for change. However, special benefit rules are in place to expedite support for those nearing the end of life, allowing quicker access to benefits without the usual medical assessments.
Lord Livermore also emphasized that the government will consider modifications to reduce the inconsistent hurdles presented by various private pension schemes, ensuring more equitable access for terminally ill individuals who rely on these funds for their care and wellbeing.