The Labour government is facing calls to increase the minimum age at which people can tap into their private pension pots, as a leading think tank argues the current rules are fuelling early retirement and harming the economy.
The Case for Changing Pension Rules
The Resolution Foundation has published a stark warning, stating that the UK's current pension and tax rules actively incentivise wealthy individuals to retire early. The foundation's economists argue that limiting access to pension wealth before the state pension age is a necessary step to keep older workers in the labour market.
Nye Cominetti, a senior economist at the Resolution Foundation, explained the rationale. "Our pensions and tax rules currently incentivise very wealthy people to retire early," he said. "These generous tax breaks should be restricted. By doing so, the Government can boost both employment and the public finances."
Proposed Solutions and Current Timelines
The think tank has suggested two primary methods for the government to achieve its goal. The first is straightforward: raise the age at which tax-relieved private pension savings can be accessed. The second is to reduce the amount of pension wealth that can be taken tax-free.
Currently, the earliest most savers can access their private pension is age 55. However, this is already scheduled to rise to age 57 from April 2028. The Resolution Foundation's proposal would likely see this minimum access age rise further, aligning it more closely with the rising state pension age.
It is important to note that exceptions exist. Individuals may be able to access their pension before 55 due to serious ill health, or if their pension scheme has a protected earlier pension age.
Addressing the UK's Employment Gap
The push for reform is rooted in a concerning employment trend. While the UK's overall employment rate is competitive internationally, it lags significantly behind the best-performing countries when it comes to the proportion of people over 50 who are still in work.
The foundation advocates for a "mix of carrots and stick" to improve job prospects for older workers. Restricting early pension access forms part of the 'stick', while complementary support and retraining opportunities would act as the 'carrot'. The overarching aim is to remediate rising unemployment by encouraging a longer working life, thereby increasing economic activity and tax revenues.
This proposal places a significant policy decision before the Labour government, balancing individual financial freedom against broader economic and employment needs.
