Labour urged to increase private pension age

Labour has been encouraged to prevent workers from accessing their private pensions from the age of 55 to address early retirement and growing unemployment, according to the Resolution Foundation, a prominent think tank with ties to senior Labour figures. The foundation argues that current pension and tax regulations incentivise wealthier individuals to exit the workforce before reaching the state pension age, exacerbating labour shortages and weakening public finances.

Under the current system, individuals can draw on their private pensions from age 55, 11 years before the state pension age, which is set to increase from 66 to 67 this year. Up to a quarter of a private pension, capped at £268,275, can be withdrawn tax-free at that point. The think tank suggests that the government should consider limiting access to private pension wealth before the state pension age, either by raising the minimum access age or by reducing the tax-free withdrawal amount.

The call for reform comes amid signs of a weakening labour market. The Office for National Statistics reports that the UK unemployment rate has risen to 5.1%, up from a post-pandemic low of 3.6% in 2022. The Resolution Foundation attributes this increase mainly to individuals under 25 and over 50 leaving or failing to enter the workforce.

While employment rates among “prime-age” workers in the UK align with high-employment European countries like Denmark, Germany, and Norway, the nation lags in retaining older workers. By age 55, around a quarter of Britons are not employed, a figure that increases to over a third by age 60 and more than half by 64. At the current state pension age of 66, only 30% remain in work.

Among those aged 50 to 65 who are not working, 41% cite illness or disability as the primary reason, while 31% are retired. An additional 12% are homemakers, and 6% are unemployed and actively seeking employment. The minimum age for accessing private pensions is already set to rise to 57 from April 2028, a change previously recommended by the Resolution Foundation in a 2023 post-pandemic report. The think tank now suggests further reforms may be necessary.

Nye Cominetti, an economist at the Resolution Foundation, noted that generous tax reliefs are influencing behaviour at the upper end of the income scale. He stated, “Our pensions and tax rules currently incentivise very wealthy people to retire early. These generous tax breaks should be restricted. By doing so, the Government can boost both employment and the public finances.”

The Resolution Foundation highlighted that the UK’s unemployment rate is now close to the European Union average of 6% for the first time since the euro’s introduction in 2002, indicating that the issue is primarily domestic rather than globally driven. Some countries have already implemented more stringent measures. Denmark, a high-employment economy, has linked its state pension age to life expectancy, requiring workers to wait until age 70 for payments. The UK state pension age is set to increase to 68 by 2042, prompting speculation that future governments may adopt a similar approach.

Despite incentives to delay retirement, the number of pensioners in employment has risen due to cost-of-living pressures. According to HM Revenue & Customs estimates, more than 1.5 million people over the state pension age are now working. Approximately 1.56 million over-65s are on payrolls, a 12% increase from 2020–21, while 562,000 pensioners were self-employed in 2024–25.

A Treasury spokesperson stated that the government remains focused on retirement security, highlighting its commitment to the triple lock, which is valued at £470 annually for new state pension recipients. The spokesperson added, “We have also launched a pensions commission to look at what more is required to ensure the pensions system is strong, fair and sustainable.”