Labour has been urged to cease staff accessing their personal pensions from the age of 55 in an effort to curb early retirement and sort out rising unemployment, in response to a number one suppose tank.
The Decision Basis, which has shut hyperlinks to senior Labour figures, stated present pension and tax guidelines encourage wealthier staff to go away the labour market years earlier than state pension age, worsening labour shortages and weakening the general public funds.
Underneath current guidelines, savers can draw on their personal pension from age 55, 11 years earlier than the state pension age, which is because of rise from 66 to 67 this 12 months. As much as 1 / 4 of a non-public pension, capped at £268,275, might be taken tax-free from that time.
In a brand new intervention, the suppose tank stated ministers ought to think about limiting entry to non-public pension wealth earlier than state pension age, both by elevating the minimal entry age or by decreasing the quantity that may be withdrawn tax-free.
“To scale back the monetary incentives for individuals to retire early, the Authorities ought to think about limiting entry to non-public pension wealth earlier than the state pension age,” the muse stated. “This might be accomplished both by elevating the age at which tax-relieved personal pension wealth might be accessed or by decreasing the quantity that’s tax-free.”
The decision comes amid indicators of a weakening labour market. Figures from the Workplace for Nationwide Statistics present the UK unemployment price has climbed to five.1 per cent, up from a post-pandemic low of three.6 per cent in 2022. The Decision Basis stated the rise has been pushed largely by individuals underneath 25 and over 50 leaving or failing to enter work.
Employment charges amongst so-called “prime-age” staff within the UK stay comparable with high-employment European economies similar to Denmark, Germany and Norway, however Britain lags behind on the subject of maintaining older staff in jobs.
Information cited by the suppose tank exhibits that by age 55, round 1 / 4 of individuals in Britain will not be in employment. That determine rises to greater than a 3rd by age 60 and over half by 64. On the present state pension age of 66, solely 30 per cent stay in work.
Amongst individuals aged 50 to 65 who will not be working, 41 per cent cite illness or incapacity as the principle cause, whereas 31 per cent say they’re retired. An extra 12 per cent are home-makers and 6 per cent are unemployed and actively searching for work.
The minimal age for accessing personal pensions is already scheduled to rise to 57 from April 2028, a change the Decision Basis itself beneficial in a post-pandemic report in 2023. The suppose tank now suggests additional reform could also be wanted.
Nye Cominetti, an economist on the Decision Basis, stated beneficiant tax reliefs have been distorting behaviour on the prime finish of the revenue scale.
“Our pensions and tax guidelines at present incentivise very rich individuals to retire early,” he stated. “These beneficiant tax breaks ought to be restricted. By doing so, the Authorities can increase each employment and the general public funds.”
“The UK does fairly properly on its total employment price in contrast with different wealthy nations,” he added, “however trails the best-performing nations on the subject of the share of individuals over 50 in work. The Authorities ought to supply a mixture of carrots and sticks to enhance their job prospects.”
The inspiration famous that UK unemployment is now near the European Union common of 6 per cent for the primary time because the euro was launched in 2002, suggesting the issue is basically home quite than pushed by international situations.
Some nations have already gone additional. Denmark, usually cited as a high-employment economic system, has linked its state pension age to life expectancy, that means staff should now wait till age 70 to obtain funds. The UK state pension age is scheduled to rise to 68 by 2042, fuelling hypothesis that future governments may undertake the same strategy.
Regardless of incentives to retire later, the variety of pensioners nonetheless working has been rising as cost-of-living pressures chunk. Greater than 1.5 million individuals over the state pension age are actually in employment, in response to estimates from HM Income & Customs, primarily based on the most recent Survey of Private Incomes. Round 1.56 million over-65s are on payrolls, a 12 per cent enhance in contrast with 2020–21, whereas 562,000 pensioners have been self-employed in 2024–25.
A Treasury spokesperson stated the federal government remained targeted on retirement safety, pointing to its dedication to the triple lock, which it stated was price £470 a 12 months to recipients of the brand new state pension.
“We now have additionally launched a pensions fee to take a look at what extra is required to make sure the pensions system is powerful, truthful and sustainable,” the spokesperson added.
