In a new environment where the working patterns of people at retirement age are changing, and where many more may need to stay in work and balance earned income with pension payments, the pensions system needs to change, says 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, and this appears to be happening.
The latest statistics show that as the UK got closer to the end of 2022, there was a decrease in the economically inactive rate, largely driven by those aged 16-24. There was a record high net flow out of inactivity into employment, a whopping 62% coming from this group, which is good news for their financial future.
We also saw a slight fall in the numbers in the over 50s age group, compared to the previous quarter 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 along with the Government’s ‘Britain needs you’ plea to the over 50s to stay in, or return to, work.
Surprising there were over 15,000 fewer retired people in the October to December, possibly as people address their finances and delay retirement, or move to part-time work. The economically inactive rate is still 1.2% percentage points higher than before the pandemic, compared to the previous three month rate of 1.3% so it appears the UK is moving in the right direction and slowly 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.”
