Pension overhaul as terminally ill Britons could get early access to savings under proposal

The Government will conduct a review into allowing terminally ill people to access their pension savings early

The Government will conduct a review into allowing terminally ill people to access their pension savings early

Sick Britons who have been given a terminal diagnosis from their doctor could be given early access to their pension savings under new plans being considered by Labour.

The Government has announced it will review pension access rules for people with terminal illnesses after a Treasury minister conceded the existing framework is no longer fit for purpose.

Lord Livermore acknowledged the current definition of terminal illness was "clearly outdated" when responding to questions in the House of Lords from Labour peer Baroness Martin of Brockley.

The minister recognised that terminally ill individuals face difficulties when attempting to access their pension savings early, with varying obstacles depending on their particular scheme.

Lady Martin, who previously served as Rachel Reeves's chief of staff, raised concerns that modern medicine now enables some terminal patients to survive a decade or longer.

Under existing rules, individuals with a life expectancy of under twelve months can withdraw a Serious Ill Health Lump Sum from their private pension.

For those aged below 75, this payment can be received without tax liability up to a maximum of £1.073million. Any sum exceeding this threshold is subject to income tax.

Lord Livermore told peers that whilst current provisions aim to offer flexibility, the Government accepts that the permissive structure of these rules results in individuals encountering different barriers to accessing their funds depending on which pension scheme they belong to.

He stated the Government seeks to guarantee a fair and compassionate approach for those facing terminal diagnoses.

Lady Martin argued that pension access rules were created during an era when a terminal diagnosis typically meant death within months, but medical science has advanced considerably since then.

She highlighted that survival rates for cancer patients have transformed dramatically, with approximately half now living ten years or more following diagnosis, compared with just a quarter in the 1970s.

In a question to the minister, she asked: "Can the minister confirm that when the Government looks at this issue, they will ensure that the access rules will 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?"

Lord Livermore confirmed the Government would undertake this review, agreeing that existing pension definitions fail to align with broader legislation, including the Department for Work and Pensions (DWP) standard definition.

The minister added: "Although I can't prejudge it, it would be ideal if there was now one standard definition."

He added that the Government would examine access arrangements across individual private pension schemes and consider necessary reforms whilst protecting against potential financial hardship in later life.

The announcement follows recent changes to two Government-backed fallback pension schemes for collapsed employers, which have extended their life expectancy criteria from six months to twelve months for terminal ill health payments.