Written by Kate Smith, head of pensions at Aegon
Since the pandemic we’ve seen a worrying increase in the number of economically inactivity people, those neither in work nor actively seeking work, particularly in the 50 to 64 age group. Thousands of this group, largely men, were exiting the workforce, many to retire.
As the government focuses on economic growth, which will in part be reliant on getting the over 50s back in work, returning to pre-pandemic levels will be important.
The latest statistics show that as the UK started to enter the colder darker winter months, there’s been a decrease in the economically inactive rate, with numbers similar to last quarter in the over 50s age group, but still worryingly high compared to pre-pandemic levels.
The cost of living crisis appears to be keeping some of this group in work longer, possibly moving into part-time employment instead of fully retiring altogether, with retirement being cited by the fewest number since March 2021. The economically inactive rate is still 1.3% percentage points higher than before the pandemic, so it appears the government may face an uphill struggle in getting more people back in work.
As people’s working patterns change it’s important that the pensions system is fit for the 21st century, reflecting the world of work. The over 50s could move in and out of work as well as change their working hours, living on a combination of earned income and pensions income. It’s important that barriers are removed which stop them from doing this in order to retain their skills and help the UK’s growth and resilience.
One little known rule, the money purchase annual allowance, stops people having true flexibility. Once people access their pension income flexibly, currently from age 55, the amount they can save tax efficiently drops dramatically from a maximum of £40,000 to £4,000 a year, effectively preventing people from rebuilding their pensions. It’s time this draconian rule was changed to reflect modern working patterns and encourage more over 50s to return to work.