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Labour has been urged to stop workers accessing their private pensions from the age of 55 in an effort to curb early retirement and tackle rising unemployment, according to a leading think tank.
The Resolution Foundation, which has close links to senior Labour figures, said current pension and tax rules encourage wealthier workers to leave the labour market years before state pension age, worsening labour shortages and weakening the public finances.
Under existing rules, savers can draw on their private pension from age 55, 11 years before the state pension age, which is due to rise from 66 to 67 this year. Up to a quarter of a private pension, capped at £268,275, can be taken tax-free from that point.
In a new intervention, the think tank said ministers should consider limiting access to private pension wealth before state pension age, either by raising the minimum access age or by reducing the amount that can be withdrawn tax-free.
“To reduce the financial incentives for people to retire early, the Government should consider limiting access to private pension wealth before the state pension age,” the foundation said. “This could be done either by raising the age at which tax-relieved private pension wealth can be accessed or by reducing the amount that is tax-free.”
The call comes amid signs of a weakening labour market. Figures from the Office for National Statistics show the UK unemployment rate has climbed to 5.1 per cent, up from a post-pandemic low of 3.6 per cent in 2022. The Resolution Foundation said the rise has been driven largely by people under 25 and over 50 leaving or failing to enter work.
Employment rates among so-called “prime-age” workers in the UK remain comparable with high-employment European economies such as Denmark, Germany and Norway, but Britain lags behind when it comes to keeping older workers in jobs.
Data cited by the think tank shows that by age 55, around a quarter of people in Britain are not in employment. That figure rises to more than a third by age 60 and over half by 64. At the current state pension age of 66, only 30 per cent remain in work.
Among people aged 50 to 65 who are not working, 41 per cent cite sickness or disability as the main reason, while 31 per cent say they are retired. A further 12 per cent are home-makers and 6 per cent are unemployed and actively seeking work.
The minimum age for accessing private pensions is already scheduled to rise to 57 from April 2028, a change the Resolution Foundation itself recommended in a post-pandemic report in 2023. The think tank now suggests further reform may be needed.
Nye Cominetti, an economist at the Resolution Foundation, said generous tax reliefs were distorting behaviour at the top end of the income scale.
“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.”
“The UK does reasonably well on its overall employment rate compared with other rich countries,” he added, “but trails the best-performing nations when it comes to the share of people over 50 in work. The Government should offer a mix of carrots and sticks to improve their job prospects.”
The foundation noted that UK unemployment is now close to the European Union average of 6 per cent for the first time since the euro was launched in 2002, suggesting the problem is largely domestic rather than driven by global conditions.
Some countries have already gone further. Denmark, often cited as a high-employment economy, has linked its state pension age to life expectancy, meaning workers must now wait until age 70 to receive payments. The UK state pension age is scheduled to rise to 68 by 2042, fuelling speculation that future governments could adopt a similar approach.
Despite incentives to retire later, the number of pensioners still working has been rising as cost-of-living pressures bite. More than 1.5 million people over the state pension age are now in employment, according to estimates from HM Revenue & Customs, based on the latest Survey of Personal Incomes. Around 1.56 million over-65s are on payrolls, a 12 per cent increase compared with 2020–21, while 562,000 pensioners were self-employed in 2024–25.
A Treasury spokesperson said the government remained focused on retirement security, pointing to its commitment to the triple lock, which it said was worth £470 a year to recipients of the new state pension.
“We have also launched a pensions commission to look at what more is required to ensure the pensions system is strong, fair and sustainable,” the spokesperson added.
