Terminal Illness: Early Access to Pensions
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The Parliamentary Under-Secretary of State for Work and Pensions (Laura Trott)
It is a pleasure to serve under your chairmanship, Mr Sharma. We have been discussing a very sensitive issue, and I thank the hon. Member for Angus (Dave Doogan) for bringing forward the debate, and all hon. Members for their contributions.
The Government remain committed to ensuring that all citizens can live with the dignity and respect they deserve. I think it would help if I first set out the principles behind the state pension, which is the foundation of state support for older people. In 2016, the system was reformed, with the introduction of the new, simpler and more straightforward state pension as the basis for private saving, to which people can add throughout their lives.
The state pension is a contributory social benefit, financed through the national insurance fund. The national insurance system operates on a pay-as-you-go basis, meaning that today’s contributors are paying for today’s social security entitlements and pensions, while those who paid contributions in the past were paying for the pensions of that time. In other words, the contributors to the national insurance system do not accumulate an individual pot of money that is personal to them.
People’s national insurance contributions do not just pay for the state pension. They also entitle them—or, in certain circumstances, their spouses—to contributory social security benefits such as unemployment and bereavement benefits, which are available on the basis of the rules applicable at the time the claim is made, and about 20% of national insurance contributions are paid into the NHS. Therefore, it is a question not so much of a person paying for their own benefits, but of a general pooling of resources to meet current benefit claims for all those covered by the national insurance system.
A person’s contributions are geared towards liability to pay rather than any likelihood of future benefit entitlement. In that sense, it is similar to income tax rather than a private insurance or pension scheme. It has always been an overriding principle of the national insurance system that liability to contribute exists, whether or not those contributions will eventually give entitlement to a particular benefit. That is very different from private pensions, where a person builds up a pool that is specifically theirs, and where different laws rightly exist.
Therefore, early access to a state pension would not be appropriate in the case of terminally ill people, but there are a variety of other benefits available to them. For those nearing the end of their life, significant support is already available through the welfare system. Hearing that an illness cannot be cured must be a frightening and devastating experience, and I pay tribute to the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) for all his work on that with the APPG. Our priority within the DWP is providing people with financial support quickly and compassionately. The main way we do that is through the special benefit rules, which have been mentioned today and which are sometimes referred to as the special rules. They give people nearing the end of their life faster and easier access to certain benefits, without their needing to attend a medical assessment or serve waiting periods. In most cases, people will receive the highest rate of benefit.
Changes to the special rules mean that thousands of people nearing the end of their life will be able to claim fast-tracked financial support from the benefits system six months earlier than they were able to previously. Historically, people had to be assessed by their healthcare professional as having six months or less to live. That is known as the six-month rule, which the hon. Member for Inverness, Nairn, Badenoch and Strathspey referred to. In July 2021, the Government announced that they intended to replace the six-month criteria with a 12-month, end-of-life approach. Last April, the Department made those changes to the special rules for eligibility for universal credit and employment and support allowance. In April 2023, the Department made similar changes for PIP, disability living allowance and attendance allowance. Those changes have been welcomed—as they have been today—by the key charities active in the area, by the public and by parliamentarians.
I will now expand on my earlier remarks on early access to state pension. Unlike a personal or workplace pension, which can potentially be drawn earlier, it has always been the case that nobody can claim their state pension before they reach state pension age. There are a wide range of working-age benefits available to support people who are below state pension age . Removing the clear boundaries between working-age and pensioner benefits would create complexity and confusion. This is not simply a monetary issue.
As an example of the complex issues relating to early access, the value of an individual’s state pension is based on their contribution record. Is the intention here to base it on the contribution record of those who are, sadly, at the heart of today’s debate? If the value of that state pension, based on the person’s record, is deficient, would they be entitled to means-tested pension credit? If they took their state pension early, would it need to be actuarially reduced to reflect that? Early access actually means lowering the age of entitlement to state pension. At what age would it be set for this group? Would it be 16, in line with the age—
Drew Hendry
I appreciate the Minister’s position, but I am not sure that many people who are terminally ill, or those who work with them, will be comforted by the technicalities she is laying out. She is laying out the rules as they stand, but does she see no opportunity for things to be adjusted so that the entitlement age for those who are terminally ill could be adjusted, as it is in other countries? Is there no opportunity or intention for the UK Government to look at that?
Laura Trott
The Department’s position is that help is available through benefits other than the state pension. The state pension is not an entitlement pool that exists; it is done on a pay-as-you-go basis. Of course, it is different from private pensions, which I will come to in a second, and there is more that we could do on that front to make the situation easier and more straightforward.
I of course accept the sentiment on which this proposal is based—that those who are terminally ill should be financially supported—but grounding this support on the state pension system, because it is there, does not make for a practical proposition, and that is in addition to my earlier points on the nature of the state pension.
Hon. Members will be aware that the second Government review of state pension age was published on 30 March 2023. The Government noted the independent report’s recommendations on the rise from 67 to 68, but highlighted that Baroness Neville-Rolfe was unable to take into account the long-term impact of recent significant external factors, bringing uncertainty to the data on life expectancy, the economic position and labour market.
I raise that point because, as part of that process, independent reviewers looked at early-access policies that would allow variation in state pension age for certain groups. John Cridland covered that in his 2017 independent review of state pension age. More recently, Baroness Neville-Rolfe, in her independent review, recommended that the Government should look at such a scheme for people who had spent long periods of their lives doing physical work.
However, both reviewers recognised the real, practical difficulties of designing and delivering such a scheme. We are aware that when and why people leave the labour market will vary and will be affected by a host of factors, including their national insurance record, savings, health, caring responsibilities and other factors. It would be impossible to take account of all those factors in setting the state pension age or to create rules for one particular group that would be fair to others. In addition, the Government are mindful of the fact that a universal state pension age has many benefits, including giving a clear signal to those planning for retirement.
Private pensions are very different. Through automatic enrolment, we have extended pension saving, so more individuals will have access to choices at retirement, with more than 10.8 million people automatically enrolled into a workplace pension as of March 2023. If someone has a defined benefit private or workplace pension, they may be able to begin taking an income and/or lump sums from their pension at any age due to ill health. That provision is dependent on the rules of the scheme.
In addition, the generous tax benefits of saving into a defined contribution pension provide individuals with the ability to accrue savings for their retirement and provide them with freedom and choice about how they access them. Individuals can normally access those savings, without penalty, from age 55. However, to address the point made by the shadow Minister, the hon. Member for Reading East (Matt Rodda), they may be able to access their pension as a lump sum from any age if the scheme administrator has received evidence from a registered medical practitioner that the member is expected to live for less than one year.
The hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) raised a specific example of where there were difficulties. I would be grateful if she would write to me about that, and we can see whether there is anything we can do to help.
The hon. Member for Reading East raised some points on energy. The energy price guarantee has been extended for an additional three months at its current level, from April to the end of June. That will bring a typical household energy bill for dual-fuel gas and electricity down to around £2,500 per year in Great Britain and around £2,109 per year in Northern Ireland.
In conclusion, I have set out the range of support that the Government provide for people with terminal illnesses. Although I of course have the greatest sympathy for anyone in that position, the Government do not believe that adjusting the state pension system to support that group is the right approach, although early access to private pensions is obviously a different matter.
