Pausing pension contributions for a year ‘may dent retirement pot by thousands’
Some 93% of people Standard Life surveyed said costs and high inflation are going to have impact on, or are already affecting, their finances.
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People who pause their workplace pension contributions for just a year due to cost-of-living pressures may end up thousands of pounds worse off in retirement than if they had continued, calculations suggest.
Someone who started working with a salary of £25,000 per year and paid the minimum contributions from the age of 22 could end up with nearly £457,000 in retirement, pensions provider Standard Life calculated.
But if they paused at the age of 35 for just one year, they could end up with just over £444,000 by the age of 68 instead – which would be nearly £13,000 less than if they had continued to pay in.
Someone stopping for two years could end up around £25,000 worse off in retirement and someone pressing pause for three years could be nearly £38,000 short of what they may otherwise have accumulated.
Consumers have had to contend with a lot so far this year
The calculations were based on various assumptions, including certain levels of investment growth, salary growth and annual charges. Standard Life emphasised they should not be used to accurately represent exactly what might happen.
Standard Life also surveyed 2,500 customers and found that, if they had to cut down on expenses, 15% would put less money into savings accounts, and 6% would reduce their pension contributions.
The vast majority (93%) said that increasing costs and high inflation are going to have an impact, or are already having an impact, on their financial situation, rising from 88% in the first quarter of this year.
More than three quarters (77%) of people expect to have to cut back on spending or saving, rising to 86% with an income of less than £20,000.
Some 83% of households with between £20,001 and £30,000 in income said the same, as did just under three quarters (72%) of households with £70,001 to £100,000 in income and more than half (56%) of households earning more than £100,000.
Jenny Holt, managing director for customer savings and investments at Standard Life, said: “Consumers have had to contend with a lot so far this year, and since April alone we have seen the increase to the energy price cap, higher national insurance contributions, as well as inflation recently reaching 9.1%.
“This is of course taking its toll on people’s finances, with many having to cut back on spending and saving as a result.”
Tim Gosling, head of policy at B&CE, provider of the People’s Pension, said: “Based on the evidence presented in the research, it appears that most people wouldn’t consider pausing their pension contributions due to cost-of-living pressures and this corresponds with what we have seen.
“Saving through automatic enrolment held up extremely well under the pressures of the pandemic and it is likely that this will be the case during the current economic turbulence many people are currently experiencing.”