Rishi Sunak under pressure to take action to help over-50s back into workforce

Figures from the Office for National Statistics (ONS) showed that the economic inactivity rate decreased by 0.2 percentage points to 21.5%. In the last three years, there has been a rise in those aged 50-64 years leaving the workforce as a lifestyle choice or due to long-term illness.

A Lords report showed that this early retirement phenomenon is stunting Britain’s growth and stoking inflation.

The prime minister is now being urged to lift tax rules on the size of pensions to limit the amount of over-50s retiring early.

Senior conservatives say the lifetime allowance should be increased or even scrapped because it acts as an “incentive” to quit.

Damian Green, a former work and pensions secretary, told the Telegraph it has been a “perverse incentive encouraging professionals to retire early just when we need their skills”.

Pensioners are typically taxed 55% from any earnings they withdraw from their pension pot above the current threshold, which currently stands at £1,073,100.

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Baroness Altmann, a former pensions minister, said the threshold, brought in by Tony Blair’s government in 2006, was an “ill-thought out” policy, costing more than it brings in for the Exchequer.

“The unintended consequences are now really coming home to roost,” she told The Telegraph.

“It’s driving away the most valuable people in their 50s. They’re frightened of a regime that punishes them if they build up their pension.

“We’ve got this lack of joined-up thinking where a workplace benefit is turning into a workplace penalty for the most valuable senior staff.”

Ministers have been warned that the tax is incentivising skilled people to leave the workforce. A recent survey showed that one in six doctors hope to retire early because of the allowance limit.

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Baroness Altmann said that doctors retiring early will exacerbate the problem as it means people suffering long-term sicknesses will have to wait longer to be treated. The NHS backlog now stands at 7.2 million, a record high.

Treasury sources did not dismiss the prospect outright, saying they would wait to see his report, which will be delivered in the New Year. 

The Labour party have said the government need to take urgent action to help over-50s and the long-term sick back to work.

Jonathan Ashworth, the shadow work and pensions secretary, told the Guardian: “It’s disgraceful that there are still no proposals from ministers to help inactive people who want to work back into the labour market.

“Labour has a plan to get Britain back to work and support over-50s and the long-term sick into jobs. We will give more power and flexibility to local areas to run employment support services, and ensure that Jobcentres are open and accessible to all who would benefit from targeted, specialist help as part of our ambition to target the highest fall in employment in the G7.”