Policy paper

Definition of terminal illness for pensions access

Published 28 October 2026

Who is likely to be affected 

Members of registered pension schemes who become seriously ill before they start to take their pension benefits, medical practitioners who provide evidence that members have less than a year to live and scheme administrators of registered pension schemes.

General description of the measure 

Changes are being made to provide greater flexibility in the medical evidence requirements for serious ill-health lump sums. A lump sum may be paid where the pension scheme member can be reasonably expected to die within 12 months and the supporting medical evidence may be provided additionally by a member’s medical practitioner based outside the UK. 

Policy objective 

This measure makes the tax system fairer and administratively less burdensome. It lowers the threshold that a seriously ill member of a registered pension scheme must meet to receive a serious ill health lump sum and extends who can provide the terminal medical diagnosis to include a member’s medical practitioner based outside the UK. 

Background to the measure 

Under tax legislation, individuals who are too ill to continue their employment can access their pension at any age, with payments taxed in the usual way. However, individuals with a terminal illness can receive the pension savings they have not yet accessed as a lump sum if a medical practitioner, registered under UK law, provides written evidence that they are expected to live for less than one year.

A lump sum that meets the requirements is payable tax-free only if the individual has not reached age 75 and has sufficient tax-free allowance available. For social security purposes the requirement is a more flexible one, that the individual can be reasonably expected to die within 12 months. 

The government has confirmed that, from Royal Assent, serious ill-health lump sums will be payable where scheme administrators receive written medical evidence that a member can be reasonably expected to die within 12 months. That evidence may be provided by an individual’s medical practitioner, including one based outside the UK. 

Detailed proposal 

Operative date 

The measure will have effect on or after the date of Royal Assent to Finance Bill 2026-27. 

Current law  

Registered pension schemes are tax-advantaged vehicles intended to encourage saving for retirement. The relevant legislation is mainly set out in Part 4 of Finance Act (FA) 2004 and supporting regulations. 

Current law governing lump sum death benefits paid out of registered pension schemes is contained in Part 1 of Schedule 29 to FA 2004. Paragraph 4 of Schedule 29 sets out the tax requirements for serious ill-health lump sums, including that a registered medical practitioner must provide the written medical evidence of a member’s terminal diagnosis.

Section 2 of the Medical Act 1983 defines a ‘registered medical practitioner’ as a person registered with the UK General Medical Council. The tax treatment of the lump sum is set out in sections 637C of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003. If the recipient has reached age 75, the serious ill-health lump sum is taxable as pension income under section 579A ITEPA, with tax deducted under PAYE. 

Medical evidence from a registered medical practitioner is also required to meet the requirements under section 229 FA 2004 and paragraph 1 of Schedule 28 to FA 2004. 

Proposed revisions 

Legislation will be introduced in Finance Bill 2026-27 to amend FA 2004. 

Changes are being made to allow serious ill-health lump sums to be paid where the member can be reasonably expected to die within 12 months. The revised requirement will apply whether or not the member receiving the lump sum has reached age 75. Also, the definition of ‘registered medical practitioner’ will include a wider range of medical practitioners who may provide medical evidence of a terminal diagnosis.  

As a result, scheme administrators will be able to accept a terminal illness diagnosis from a member’s medical practitioner in a wider range of circumstances, including where the practitioner is based outside the UK. 

Summary of impacts 

Exchequer impact (£million) 

2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031	2031 to 2032
—	negligible	negligible	negligible	negligible	negligible

This measure is expected to have a negligible impact on the Exchequer. 

Economic impact 

This measure is not expected to have any significant macroeconomic impact. 

Impact on individuals, households and families 

This measure will impact seriously ill individuals by relaxing the requirements that must be met for them to receive their pension savings as a serious ill-health lump sum, which will be payable tax-free if they have not reached age 75. It will allow the required written medical evidence to be provided by their medical practitioners, including those based outside the UK. This will reduce the administrative burden of obtaining evidence of a terminal diagnosis.  

Overall, this measure is expected to have no impact on individuals’ experience of dealing with HMRC as it does not change any tax administration processes or obligations. 

The measure is expected to support seriously ill individuals and their families by making it easier for their medical practitioner to provide written evidence of a terminal diagnosis, removing a source of time pressure during the period they have left to live. The measure is expected to have no impact on family formation, stability or breakdown. 

Equalities impacts 

This measure may apply to individuals irrespective of protected characteristics. HMRC does not hold data that it can use to assess whether there are any disproportionate impacts to protected groups. However, many people with a terminal illness are likely to meet the Equality Act definition of disability. The measure is also expected make it easier for individuals with national origins outside the UK who return home for medical treatment to qualify for a serious ill-health lump sum, because overseas medical evidence will be accepted.  

Administrative impact on business including civil society organisations 

This measure is expected to have negligible impact on medical practitioners and pension scheme administrators as it will more closely align the medical evidence required for tax purposes with that required for social security purposes and widen the range of medical practitioners from whom evidence of a terminal diagnosis can be accepted. 

One-off costs will include familiarisation with the change, training staff and updating guidance on serious ill-health lump sums. No ongoing costs are expected. Ongoing savings are expected to include simpler verification of evidence supporting a terminal diagnosis for scheme administrators. 

Overall, the measure is expected to have no impact on businesses’ experience of dealing with HMRC as it does not change any tax administration processes or obligations. Civil society organisations such as charities that financially support terminally ill people may, in some cases, see a small reduction in demand for such support.  

Operational impact (£million) (HMRC or other) 

This measure will not require any changes to IT systems or impact staff resources and therefore carries no operational cost to HMRC. 

Other impacts 

Other impacts have been considered and none have been identified. 

Monitoring and evaluation 

Not applicable. None of the evaluation thresholds apply to this measure. We will consider monitoring and evaluation in the future as appropriate. 

Further advice 

If you have any questions about this change, contact Pensions Policy team by telephone 03000 512336 or by email policypensions@hmrc.gov.uk.