Pension Awareness Week: Savers could lose over £250k by reducing pension contributions during cost-of-living crisis
Savers are now putting less into their pension pots due to the higher cost of everyday living, according to a pension provider.
New research from M&G Wealth found that a fifth of 2,000 adults surveyed admitted that they had reduced or stopped contributing to their workplace pension altogether. It also showed that UK savers who are scaling back their pension contributions are potentially missing out on attractive tax breaks.
And those who have taken a break from pension payments will lose the benefits of compounding, which could result in significantly smaller pots in retirement Additional data from M&G Wealth revealed that those who have reduced their monthly payments from £200 down to £100, could lose up to £271,619 in their total pension pots, or a difference of £20,919 in annual income. This would also result in a monthly reduction of income from £3,479 to £1,735.751.
For those looking to increase their short-term income by temporarily halting payments for a three -ear period before increasing back to previous levels, it would cost them up to £59,158 in retirement.
It was also calculated that if those earning the UK average salary of £27,756 per year and contributing the minimum auto-enrolment amount per month of £143.44, suspended paying into their pensions for three years at aged 30 then it could impact their final pot by £21,792.
Overall, this would leave a pot of £173,013 compared to a pot of £194,805, if they continue contributions at current levels.
Cost of living ‘a strain’
Kirsty Anderson, a pension specialist at M&G Wealth, said: “The cost-of-living crisis is continuing to place a strain on people’s bank balances, and many are having to take action to free up more cash for the here and now. However, while reducing pensions contributions might seem like a quick fix to free up money, savers need to be aware of the financial implications this could have for them later in life.
“Pensions are one of the most efficient and lucrative forms of saving, especially for those in companies with an employer-matching scheme, meaning there might be better ways of raising short-term funds. Our data shows that even taking a short break from your contributions could have a significant impact in retirement.
“In an environment where every penny counts, savers should equip themselves with as much information as possible before making changes, from the use of free online tools to the services of a financial adviser for those with bigger pots of money.”