Most people must wait until at least age 55 to access their pension (rising to 57 from April 2028). But if you have a serious illness with a short life expectancy, pension rules allow for earlier and potentially tax-free access. Understanding how this works can make an enormous difference to financial planning during a very difficult time.
The Two Types of Ill-Health Pension Access
It is important to distinguish between two different situations:
| Situation | Type of access | Tax treatment |
|---|---|---|
| Unable to work due to illness or disability | Ill-health early retirement (DB schemes) | Pension paid early — taxed as income as normal |
| Life expectancy of less than 12 months | Serious ill-health lump sum | May be entirely tax-free (under age 75) |
This guide focuses on the second — serious ill-health lump sums for those with a terminal prognosis.
Serious Ill-Health Lump Sums: The Rules
Under age 75:
- You can take your entire remaining pension as a lump sum
- The tax-free element is tested against your available lump sum and death benefit allowance (LSDBA) — not the smaller 25% tax-free cash allowance that applies to ordinary pension withdrawals. The standard LSDBA is £1,073,100 in 2026/27
- Because the LSDBA is so much larger than most pension pots, the entire lump sum is often tax-free in full for someone taking serious ill-health benefits under 75
- Amount above your available LSDBA is taxed at your marginal income tax rate
- If you have already taken tax-free cash from this or another pension (such as a 25% Pension Commencement Lump Sum), the cash amount of that earlier tax-free payment is deducted from your available LSDBA, reducing what remains
At or after age 75:
- Serious ill-health lump sums are taxed as income — the tax-free treatment does not apply
- You may still be able to access the pension, but all withdrawals are subject to income tax
Medical Evidence Required
Your pension provider will require:
- A letter or certificate from a registered medical practitioner (your GP, specialist, or consultant)
- Confirmation that your life expectancy is less than one year
- Some providers have standard forms; others accept a letter from your doctor
Contact your pension provider directly — most have a dedicated serious ill-health process and will guide you through requirements.
Defined Benefit Pensions
For DB schemes, serious ill-health rules depend on the scheme rules rather than solely on HMRC provisions. Your scheme may offer:
- A commutation of the pension to a lump sum (a “trivial commutation” or scheme-specific provision)
- Enhanced benefits on incapacity grounds
- A spouse’s or dependant’s pension continuing after your death
The scheme trustees must approve any early access. HMRC rules set maximum tax-free amounts; scheme rules govern what the scheme will actually offer.
Impact on Your Lump Sum and Death Benefit Allowance (LSDBA)
The lump sum and death benefit allowance (LSDBA) is a separate, larger allowance from the standard lump sum allowance (LSA) of £268,275 that limits ordinary 25% tax-free cash. The LSDBA — £1,073,100 in 2026/27 for most people — covers serious ill-health lump sums and tax-free lump sum death benefits combined.
If you have already taken tax-free cash from a pension (for example, a 25% Pension Commencement Lump Sum), the cash amount of that earlier payment reduces both your remaining LSA and your remaining LSDBA pound for pound.
Example: You previously took £50,000 tax-free cash from a pension at age 60. This reduces your remaining LSDBA to £1,023,100 (£1,073,100 − £50,000). If your remaining pension pot is £300,000 and you take it under serious ill-health rules at age 68, the entire £300,000 falls within your remaining LSDBA of £1,023,100 and is paid tax-free. Only pots approaching seven figures (after accounting for any tax-free cash already taken) risk running into the LSDBA limit.