Nearly a third (32 per cent) of Brits believe pension or tax rules are a 'barrier' to continuing paid work in later life, according to research from Smart Pension, prompting calls for the government to consider the impact of pension taxation ahead of the Budget.

The research, conducted among more than 3,000 adults, found that current pension and tax rules could discourage people from staying in employment as they approach retirement, despite growing demand for more flexible working arrangements in later life.

Smart Pension warned that the findings raised questions about whether government policy was keeping pace with changing retirement expectations, particularly as more people sought to combine employment with accessing their pension savings.

The provider highlighted the Money Purchase Annual Allowance (MPAA) as a potential barrier, as it can reduce the amount individuals can contribute to defined contribution (DC) pensions while benefiting from tax relief from £60,000 to £10,000 annually once they have flexibly accessed taxable pension income.

It argued that this could make it harder for people to combine pension drawdown with continued employment and pension saving.

Meanwhile, those continuing to work while drawing a pension could face additional tax complications, with earnings and pension withdrawals potentially combining to increase their income tax liability.

Smart Pension suggested that these rules reflected a more traditional approach to retirement, where individuals typically moved directly from employment into retirement, rather than gradually reducing their working hours.

The research also revealed an appetite for more flexible retirement arrangements, with 44 per cent of people aged 50 to 65 feeling positive about continuing some form of paid work beyond the traditional retirement age.

Smart Pension argued that supporting later-life employment could also deliver wider economic benefits, citing Office for National Statistics data showing that more than 850,000 people aged 50 to 64 were currently out of work but either actively looking for employment or wanting to work.

However, the provider acknowledged that pension and tax rules were only one of several potential barriers to later-life employment.

Smart Pension director of policy, Joe Dabrowski, warned that decisions about pension policy and taxation have consequences that last for decades.

"They can shape some of the biggest decisions people make about their lives: when to stop working, how much to save and how to balance work and other commitments as they get older," he continued.

"As ministers consider pension policy, it's vital that they take a long-term view and think carefully about how their decisions will affect people's choices in later life."

Dabrowski also stressed the potential economic benefits of supporting those who wished to remain in employment beyond traditional retirement age.

"Our research shows that many people want to continue working in some form as they get older," he noted.

"With more than 850,000 people aged over 50 currently out of work but wanting a job, there is a real opportunity here.

"Helping more people work later in life could mean better retirement incomes, stronger finances for households and a boost to the wider economy.

"Politicians should be looking at how to make working later in life easier for those who want to, including understanding and addressing the barriers that pension and tax rules may create."

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