State pension rules: Labour urged to reform access to retirement savings for terminally ill

Cross-party peers are urging the Government to remove barriers preventing terminally ill people from accessing their pension savings

A cross-party group of peers is urging Labour to overhaul current pension regulations.

Campaigners say that current rules unfairly penalise terminally ill savers with excessive bureaucracy and steep tax charges.

The intervention has the backing of Macmillan Cancer Support, which is calling for urgent reform to make it easier for people with terminal illnesses to access their retirement savings.

Campaigners argue that people nearing the end of their lives are being prevented from spending their own pension funds because of outdated rules and inconsistent processes across different pension providers.

Although the Government has pledged to review the regulations, those backing the campaign say ministers must act quickly rather than allowing the issue to be delayed.

Under the current framework, people diagnosed with a terminal illness can withdraw a tax-free lump sum of up to £1.073million from their pension before the age of 75, but only if a medical professional certifies they have fewer than 12 months left to live.

A separate route is available through serious ill-health retirement, which requires a doctor to confirm the individual is permanently unable to continue working.

Withdrawals made before the age of 55 attract a tax charge of at least 40 per cent.

If a saver withdraws more than a quarter of their pension pot in a single year, an additional 15 per cent tax charge applies, taking the total to 55 per cent.

Income tax may then also be payable on the withdrawn amount.

The rules were introduced to discourage people from accessing their pension savings early, but campaigners argue advances in medical treatment have made it increasingly difficult for doctors to predict whether someone has fewer than 12 months to live.

Baroness Finlay of Llandaff, a crossbench peer and professor of palliative medicine, said: "Those of working age who are terminally ill have particularly pressing expenses, both for care and in preparing their families, often where there are children, for the future they face in bereavement.

"Financial stress is cruel, making all this far more difficult."

Conservative peer Baroness Penn said public confidence in auto-enrolment depends on people believing the system is fair.

She said: "We need clear, fair and consistent rules for access for people who find themselves faced with a terminal illness, it's the least they deserve."

Liberal Democrat peer Baroness Leaman also called for urgent action.

She said: "A terminal diagnosis is already the worst luck imaginable, people should not then be subject to a second lottery on top of it.

"The right to access your pension when you are dying should be a right, not a discretion. What is needed is now pace.

"The Government must treat this as the urgent, tractable problem it is."

Labour peer Baroness Martin of Brockley highlighted the issue after someone close to her was diagnosed with aggressive lung cancer and encountered significant obstacles when trying to access his pension early.

Her intervention in the House of Lords prompted a response from Lord Livermore, who was financial secretary to the Treasury before this week's reshuffle.

He said: "I agree that the definition for when someone with a terminal illness can get their pension savings is clearly outdated and does not align with wider legislation so the Government will now review this."

Campaigners welcomed the commitment but warned the review must not lose momentum without a clear timetable for reform.

Macmillan Cancer Support has also backed calls for changes to the rules.

Ross Cooke from the charity said: "For people living with terminal cancer delays and barriers to accessing financial support can have a significant impact on their quality of life, adding to the emotional and practical challenges they are already facing.

"Everyone with a terminal illness should be able to access the financial support they're entitled to quickly, simply and with dignity."

The charity operates its Macmillan Money & More service, which provides financial guidance and practical support to people living with cancer.

Peers from Labour, the Conservatives, the Liberal Democrats and the crossbenches have now united in calling for reform, with campaigners urging the Government to move quickly to update the rules governing access to pension savings for people with terminal illnesses.