Labor has been urged to deny workers access to their private pensions from the age of 55 to curb early retirement and tackle rising unemployment, according to a leading think tank.
The Resolution Foundation, which has close links with senior Labor figures, said current pension and tax rules encourage wealthier workers to leave the labor market years before state pension age, exacerbating labor shortages and weakening public finances.
According to the existing regulations, savers can draw their private pension from the age of 55, i.e. eleven years before the statutory retirement age, which will be raised from 66 to 67 this year. From this point, up to a quarter of a private pension, capped at £268,275, can be withdrawn tax-free.
In a new intervention, the think tank called for ministers to consider limiting access to private pension assets before the state pension age, either by increasing the minimum age for access or reducing the amount that can be withdrawn tax-free.
“To reduce the financial incentives for people to retire early, the government should consider restricting access to private pension assets before the statutory retirement age,” the foundation said. “This could be done either by increasing the age at which tax-deferred private pension assets can be accessed or by reducing the tax-free amount.”
The call comes against the backdrop of signs of a weakening labor market. Figures from the Office for National Statistics show the UK’s unemployment rate rose to 5.1 percent in 2022 from a post-pandemic low of 3.6 percent. The Resolution Foundation said the increase was largely due to people under 25 and over 50 giving up or not starting work.
Employment rates among so-called “prime-age” workers in the UK remain comparable to those of high-employment European economies such as Denmark, Germany and Norway, but the UK lags behind in keeping older workers in the workplace.
Data cited by the think tank shows that by the age of 55, around a quarter of people in the UK are not in work. At the age of 60, this value increases to more than a third and at the age of 64 to more than half. At the current statutory retirement age of 66, only 30 percent are still employed.
Of those aged 50 to 65 who are not working, 41 percent cite illness or disability as the main reason, while 31 percent say they are retired. Another 12 percent are housewives and 6 percent are unemployed and actively looking for work.
The minimum age for access to private pensions is set to be raised to 57 as early as April 2028, a change recommended by the Resolution Foundation itself in a post-pandemic report in 2023. The think tank now suggests further reforms may be needed.
Nye Cominetti, an economist at the Resolution Foundation, said generous tax breaks would distort behavior at the top of the income scale.
“Our pension and tax rules currently incentivize very wealthy people to retire early,” he said. “These generous tax breaks should be limited. This will allow the government to strengthen both employment and public finances.”
“The UK performs reasonably well in its overall employment rate compared to other rich countries,” he added, “but lags behind the best performing nations when it comes to the proportion of people over 50 in work. The government should offer a mix of carrots and sticks to improve its employment prospects.”
The foundation found that unemployment in the UK is now close to the European Union average of 6 percent for the first time since the introduction of the euro in 2002, suggesting the problem is largely domestic in nature and not driven by global conditions.
Some countries have already gone further. Denmark, often described as a high employment country, has linked its statutory retirement age to life expectancy, meaning workers will now have to wait until age 70 to receive payments. The UK’s statutory retirement age is set to rise to 68 by 2042, fueling speculation that future governments could take a similar approach.
Despite incentives to retire later, the number of retirees still working has increased due to pressure on the cost of living. HM Revenue & Customs estimates, based on the latest Personal Income Survey, that more than 1.5 million people over state pension age are currently in work. Around 1.56 million over-65s are on the payroll, a 12 per cent increase compared to 2020-21, while 562,000 pensioners were self-employed in 2024-25.
A Treasury spokesman said the government remained focused on pension security, citing its commitment to the triple lock, which is worth £470 a year to recipients of the new state pension.
“We have also established a pensions commission to consider what more is needed to ensure the pension system is strong, fair and sustainable,” the spokesman added.
