Brits should not be able to access their private pensions as early as they currently can, according to Resolution Foundation, a progressive thinktank.
Heading into chancellor of the exchequer Jeremy Hunt’s Budget next month, one issue facing the government is the shrinking of the labour force a trend that started in covid accelerated by more people retiring younger.
Currently most private defined contribution pensions can be accessed when people reach their mid-fifties.
When reaching this age, those with a private pension can withdraw a tax-free lump sum of 25% and receive regular or occasional income payments without buying an annuity.
The age at which you can access this fund is around a decade before you can receive your state pension, with the current minimum age set to increase to 67 by 2028.
The thinktank argues that if the UK wants to increase its labour force, which has shrunk by more than 500k since 2020, changes to the minimum age and the tax-free sum received need to change.
Resolution Foundation said: “Policy makers should consider further raising the normal minimum person age, or at least slowing the rate at which money can be withdrawn.
“Alongside this we recommend that policy makers cap tax-free lump sums.”
However, professionals informed on the issue believe these proposed changes may not work.
“The 25% tax free sum is a hugely popular element of pensions and if they get rid of that people would be very angry about it,” Helen Morrissey, senior pension analyst at Hargreaves Lansdown, told Proactive.
Sir Steve Webb, former pensions minister, also argued against the propositions stating that it would “stop people using money in the way that benefits them the best.”
He said: “People have saved voluntarily in an era when Brits chose to sacrifice their living standards and put money aside.”