Figuring out what steps to take after receiving a diagnosis for terminal illness can be incredibly overwhelming.

When you are processing such devastating news, the last thing you likely want to be doing is stressing about money or heading straight back to work.

At the same time, not having some kind of plan in place for your finances is only going to make things harder moving forward, particularly if you have additional costs related to your condition to consider.

In this article, we explore some of the financial options you might want to explore if you or a loved one finds themselves in this situation.

Can I retire early and take my pension if I have been diagnosed with a terminal illness?

If you have only been given a certain amount of time to live, you may well decide you would like to reduce your hours at your job or stop working altogether, either out of medical necessity or simply to make the most of the time you have left.

You may be considering withdrawing some of your pension earlier than expected in order to cover costs now that your circumstances have changed, but the rules around how and when you can withdraw your pension are quite tricky, and vary between different providers.

It’s really important to get some form of financial advice before doing anything involving withdrawing your pension.

If you’re considering getting professional financial advice, Aviva is offering Rest Less members a free initial consultation with an expert to chat about your financial situation and goals. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.

Taking your pension early

If you have a private or workplace pension in a defined contribution scheme, you may be able to withdraw some or all of this early due to ill health, even if you are below the minimum retirement age of 55. This is known as ill-health retirement, medical retirement, or retirement on medical grounds. In this situation, you will generally have the same options for withdrawing your pension as you would at 55.

The exact rules and whether you can dip into your pension will depend on what your pension provider says, so you should get in touch with them to find out what your exact options are. Many will only let you access your pension early if your illness means that you can’t return to your job – others will require that your illness means you cannot work altogether.

However, if you are under 75 and your life expectancy is less than one year, then many providers will allow you to take your entire pension tax-free. This is also called serious ill-health retirement. 

Get a free no-obligation pension consultation

Pension advice can help you get the most out of your retirement income, helping you on your way to a secure financial future. If you have more than £75k in pension savings, take the first step by arranging a free, no-obligation initial consultation with an expert from Aviva Financial Advice. Any recommendations advisers make will be for products from Aviva and other carefully selected partners. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved. Capital at risk.

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How much of my pension can I take?

Once you reach age 55, or if you qualify for ill-health retirement, you can usually withdraw 25% of your private pension as a tax-free lump sum.

If you withdraw more than this, it will be added to your taxable yearly income and reduce how much you can pay into your pension in future. Find out more in our articles Should I take my tax-free pension cash at 55? and How much tax will I pay when I withdraw my pension?

Using pension drawdown

If you have a defined contribution scheme, you can choose to invest your pension savings into a drawdown scheme, which will provide you with a regular income (while still allowing you to make lump sum withdrawals) either until you die or your savings in the scheme run out. Your current pension provider may offer such a scheme, or you may have to move your pension savings to one that does. You can find out more about drawdown in our guide What is pension drawdown and how does it work?

If you have a defined benefit scheme

If your pension is held in a defined benefit pension – also known as a final salary pension  – rather than a defined contribution pension, you can normally only access your pension at the age stipulated by your provider (usually around 60 to 65). However, as with defined contribution schemes, you may be able to start taking your pension sooner than usual in the event of ill health.

Your exact options at this point will vary according to your provider. Generally, a defined benefit scheme provides you with a guaranteed retirement income, but this income may be lower if you retire early. You might be able to transfer your pension to a defined contribution scheme, which would give you more flexibility in accessing your pension savings. It is vital to seek advice before committing to this, however, as depending on how long you’ve been given to live, there could be significant downsides to consider – read more in our article Should I transfer my final salary pension?

Buying an annuity

An annuity is a financial product that essentially allows you to buy a guaranteed income for your retirement, in exchange for some or all of your pension savings. If you have a shorter life expectancy than normal, you may qualify for an impaired life annuity, which will offer you a higher rate of income.

You should bear in mind that with a drawdown plan, any money left in your pension pot is added to your estate automatically when you die. This is generally not the case with annuities, unless you make particular arrangements. You may be able to ensure that someone else continues to receive income from the annuity after you have passed, for example by buying what is called “Value Protection” – which means your chosen beneficiary will receive up to 100% of your remaining pot as a lump sum if you die – or if your annuity was purchased on a fixed term rather than a lifetime term, in which case the income will continue to be paid into your estate for the remainder of the term.

For more information on annuities, read our article Annuities explained.

Claiming the State Pension

Regardless of circumstances, you cannot claim the State Pension until you have reached the State Pension age, which is 66 for the New State Pension for both men and women.

What happens if I die with some of my pension left?

You can usually pass your pension on to whoever you like, though how they access it and whether they have to pay tax will depend on the circumstances. Make sure you have nominated a beneficiary via your scheme provider. If you haven’t done this, you will need to complete an Expression of Wish or Nomination form providing details of who you want your pension to go to. 

Generally, if you are under 75 and have not withdrawn any of your pension when you die, your chosen beneficiary can take it all as a tax-free lump sum. If you had started taking it as an income using a drawdown plan, your beneficiary can receive the remainder of this income tax-free. If you are over 75 when you die, your beneficiaries will have to pay income tax on any income they take from your pension.

With a defined benefit pension, the scheme may simply pay out a lump sum to your beneficiaries.

Read more about how passing on your pension works in our article What happens to my pension when I die?

More information

To learn more about the ins and outs of early retirement in the event of illness, read our article Can I retire early because of illness or disability?

Am I entitled to any benefits or grants if I have been diagnosed with a terminal illness?

You may be entitled to some of these benefits if you are too ill to continue working. Many forms of benefits can take a while to apply for, but your application can usually be fast-tracked if you have been given a life expectancy of six months or less.

Personal Independence Payment (PIP)

The Personal Independence Payment replaced the Disability Living Allowance, and is available to anyone under the State Pension Age whose sickness or disability makes it hard to manage everyday tasks. Read more in our article Personal Independence Payment explained.

Employment and Support Allowance (ESA)

You can claim the Employment and Support Allowance if your illness or disability limits your ability to work, regardless of your actual employment status. You cannot claim it if you are simultaneously claiming statutory sick pay, however.

Universal credit

Universal Credit is available to anyone on a low income or who needs help meeting living costs. You must live in the UK, be under the State Pension age, and have less than £16,000 in money, savings and investments in order to claim it. Read more in our article Everything you need to know about Universal Credit.

Statutory sick pay

Statutory sick pay is the legal minimum sick pay that employers have to offer. You are legally entitled to 28 weeks of sick pay from your employer if you are too ill to work.

Macmillan Grants

Macmillan Grants are one-off payments available to those suffering from cancer with low income or savings, to help them cope with the additional costs that cancer brings. You can apply for this with a health or social care professional, who will help you complete the form.

Other resources

You can use the Turn2Us search tool to search for additional charitable grants which you may be eligible for.

You can find out if you might be eligible for help with your household bills in our article Get help with your bills. For more information on the benefits listed above, read our article Benefits if you have a health issue or disability.

Getting money out of your property

Equity release

Equity release is an increasingly popular option for homeowners looking to cash in on the value of their property without needing to sell their home, with over 150,000 homeowners releasing equity in the last two years.

Equity release is a unique mortgage product where you receive a lump sum or regular income from the provider. Rather than paying back interest, this builds up over time and is only paid back – along with the loan itself – when you die or go into care, usually by selling the property.

In the right circumstances, releasing equity can be a very useful financial option, freeing up cash that otherwise would have been tied up in your property. This could be helpful in covering everyday costs or any new costs that arise from your illness.

However, you should be sure to seek financial advice before doing so, as it is a huge financial commitment. You may find you can increase the amount you can borrow via equity release by using an ‘enhanced lifetime mortgage’ which is only available to those with health conditions. The amount you may be able to release will depend on the particular illness you have and how old you are.

Bear in mind that enhanced lifetime mortgages will usually have higher interest rates than standard lifetime mortgages. You can find out more about equity release in our guide Equity release – what is it and how does it work?

If you’re looking for somewhere to start, you can get expert advice from a Rest Less Mortgages equity release specialist. They are active members of the ERC and can advise on equity release mortgages from the whole of the market. They’ll listen to your needs and talk you through your options, so you can decide if equity release is the right option for you.

Selling your home

If you are able to, you could also consider downsizing – selling your home and moving into a smaller one – in order to free up some money and possibly reduce your mortgage payments, though this too is not an option you should undertake without advice from an expert.

Remember that moving involves significant upheaval, which may be the last thing you need at such a difficult time.

If you’re looking for mortgage advice, you can speak to a Rest Less Mortgages advisor and get high quality advice on residential, retirement interest-only, equity release and buy-to-let mortgages.

Looking ahead

Setting up a lasting power of attorney

It may be the case that as your illness develops, it becomes more difficult for you to make financial and health-related decisions yourself. If this is something you are concerned about, it would be worth setting up a Lasting Power of Attorney.

Writing a Lasting Power of Attorney (LPA) allows you to nominate someone to manage your finances and medical decisions if you become unable to. For your finances, this is called a Property & Financial Affairs LPA, and gives your nominee the legal ability to make decisions regarding your savings, investments, pensions, and so on. A Health and Welfare LPA, on the other hand, gives that person the authority to make decisions regarding what kind of care and forms of treatment you receive.

Remember that having an LPA does not mean losing control of your accounts or health automatically – it simply means that you are willing to hand over control if this ever becomes necessary. Read more in our article How to set up a lasting power of attorney.

Calculate your pension

Use the Rest Less pension calculator to find out how much you might need to save for retirement, how much your pension pot could potentially be worth and how long it could last.

Calculate my pension

Writing your will

If you’ve not yet written your will, then this is something you should think about doing soon. Nobody likes dwelling on the topic too much, but getting your affairs in order can lift a weight off your shoulders and make things much easier for your loved ones later on.

Read more about wills and how to get started writing one in our article The importance of writing a will. You may also want to record your broader wishes, and information which might be useful for your family and friends when you die. Find out how to do this in our guide Getting your affairs in order: how to help your loved ones.


If your condition develops in such a way that you require care, you or your family can find some tips for handling this financially in our section on paying for care.

For more information on dealing with the financial challenges that might come with retiring early, you can read our article How can I manage the financial impact of early retirement?

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