Treasury minister confirms ‘outdated’ pension rule to be reviewed

People with terminal illnesses could get earlier and easier access to their pensions

The Government has said one of its ‘clearly outdated’ pension rules could be overhauled as a review is set to take place.

People with terminal illnesses could get earlier access to their private pensions more easily, as the Government said it would revise the rules around how pension schemes work.

Treasury minister Lord Livermore acknowledged there were issues as he said the current definition of terminal illness was ‘clearly outdated’ as he acknowledged the difficulties for people trying to claim their pensions early.

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Lord Livermore had been asked by Labour peer Baroness Martin of Brockley whether current practices would be updated.

At present people with a life expectancy of less than a year may take a Serious Ill Health Lump Sum, but Lady Martin, who was previously Rachel Reeves’ chief of staff, said some people with terminal diagnoses may live up to 10 years or more.

The current scheme allows the sum to be taken tax-free for those below age 75, up to a sum of £1.073 million. Any amounts above that is taxed as income.

Responding to a question in the House of Lords, 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.”

Lady Martin said: “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.

“For cancer alone, around half of patients now survive 10 years or more compared to just one in four in the 1970s.

“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 responded: “I agree with her that the current definition for when someone with a terminal illness can access their pension savings is clearly outdated and does not align with wider legislation, including the (Department for Work and Pensions) standard definition, so I can confirm the Government will now review this.

“Individual private pension schemes also have their own requirements for terminally ill people to access their pensions savings.

“The Government will therefore also 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.”

He also told Labour peer Lord Pitt-Watson that the Government would consider ensuring the definition of terminal illness in pensions regulations is the same as that for the DWP.

“Although I can’t prejudge it, it would be ideal if there was now one standard definition,” Lord Livermore said.