'The Budget should avoid knee-jerk pension reforms' - Steve Webb, LCP

The March Budget is widely expected to focus on measures designed to increase economic activity rates, especially among older workers. A range of measures has been floated in the media and in speeches, including potential reforms to potential tax relief to encourage work and saving, a wider rollout of ‘mid-life’ MOTs to discourage people from retiring onto inadequate DC pension pots, and even a tax break for older workers returning to work.

Today comes more calls for change, with the Resolution Foundation arguing that the normal minimum pension age should be raised beyond the planned increase from 55 to 57 due to take place by 2028. The Resolution Foundation argues that this would encourage more people to stay in work for longer and tackle an increase in early retirement. They also call for a cap on tax-free lump sums.

However, LCP partner Steve Webb has warned against tweaking the pension system as a ‘knee-jerk’ reaction to reducing economic activity amongst older workers.

Steve Webb commented:

“Whilst the desire to make later life work more rewarding is laudable, this should not be at the expense of yet more incremental tinkering with the pension system. In particular, the idea of hiking the minimum age at which people can access their pensions would be a backward step. The existing plan to raise the age to 57 is already adding to the complexity of the system, and further increases would add more complexity with no obvious benefit. There are some people who have retired early during the pandemic, but this will often be combined with a secure final salary pension and changing pension rules for DC schemes will not affect this group. Any changes to pension rules need to be justifiable for their own sake and not a knee-jerk reaction to the rise in economic inactivity”.