People in Britain facing a terminal diagnosis could find it easier to access their pension savings under planned government changes designed to ease medical evidence requirements.

The reforms, announced by HM Revenue & Customs (HMRC) on 28 October, would change the eligibility test for serious ill-health lump sums and widen the range of medical practitioners able to provide evidence of a terminal diagnosis.

The government says the changes are intended to make it easier for seriously ill people to access money they have saved for retirement, potentially helping them and their families manage financial pressures during an exceptionally difficult period.

However, the proposals are not yet in force. They will take effect on or after Royal Assent to the Finance Bill 2026-27.

Who Could Benefit From the Changes?

Under current rules, people who have not yet started taking their pension benefits may qualify for a serious ill-health lump sum if written medical evidence from a UK-registered medical practitioner confirms that they are expected to live for less than 12 months.

The government plans to replace this test with a requirement that the person can reasonably be expected to die within 12 months. The change is intended to align the tax rules more closely with the approach used for certain social security benefits.

The reforms would also widen the definition of an eligible medical practitioner, allowing evidence to come from a medical practitioner based outside the UK in certain circumstances.

This would apply if the pension scheme member lives in the same country as the practitioner or if the pension scheme is established there. The change could be particularly relevant to people living overseas or returning to their home country for medical treatment.

By reducing the restrictions on who can provide medical evidence, the government expects to make the process of verifying a terminal diagnosis simpler for pension scheme administrators and less demanding for patients and their families.

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Will Pension Savings Be Tax-Free?

The tax treatment depends partly on the person's age and available tax-free allowance.

Under existing rules, a qualifying serious ill-health lump sum can be paid tax-free if the recipient is under 75 and has sufficient unused lump sum and death benefit allowance. Any amount exceeding the available allowance may be taxed as pension income.

For people aged 75 or older, the lump sum is generally taxable as pension income, with tax deducted through Pay As You Earn (PAYE).

The planned changes would relax the eligibility test regardless of whether the member has reached age 75. However, they would not make every payment tax-free or remove the existing age-related tax distinction.

People considering accessing their pension should therefore check the likely tax consequences with their pension provider or a suitably qualified financial adviser before making a decision.

What Should Terminally Ill Savers Do Now?

The reforms are intended to reduce administrative barriers, but they do not remove the need for written medical evidence or guarantee that every application will be approved.

Pension scheme members should contact their scheme administrator to understand the current eligibility requirements, the evidence needed and the tax treatment that would apply to their circumstances.

The government expects the changes to have a negligible impact on public finances, while reducing the administrative burden associated with checking medical evidence.

For people facing a terminal diagnosis, access to pension savings can be an important financial consideration. The proposed reforms aim to make that process more straightforward, although eligible savers will need to wait until the legislation takes effect before relying on the new rules.

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