Andrew Megson of My Pension Expert outlines how we can collectively address the temptation for people to cut back on pensions contributions during the cost of living crisis and the potential impact on future pensioner poverty.
Suffice it to say, 2022 has been a challenging year for the majority of Britons. From inflation increasing at its fastest rate in 40 years to politically fuelled economic volatility, households and individuals across the UK will be feeling the strain and looking for immediate savings to be made. And for those in full-time employment, it might be tempting to pause workplace pension contributions to make some immediate savings.
This money-saving tactic is already being explored by almost a fifth of those with workplace or private pensions, according to a recent Ipsos survey.
This is understandable. After all, workplace pension contributions can result in a seemingly sizable reduction in one’s monthly income. Reducing their payments will almost inevitably lead to short-term gains. However, in doing so, they risk jeopardising their financial futures.
The problem is, that many people taking such action might not understand the consequences of their actions, as the appropriate support is not available.
There has been debate within Westminster chambers about how best to provide support to savers to prepare them for retirement, from documented committee hearings and reports. Nevertheless, very little seems to being done to improve pension engagement or understanding amongst UK savers.
These sentiments are certainly highlighted in My Pensions Expert’s most recent research, which found that over a third (36%) of UK adults aged 40 and above say they don’t think Rishi Sunak and Jeremy Hunt will be able to restore confidence in the pensions market, while only 18% say they have faith in the government’s plans.
Companies stepping in to mitigate the problem by keeping up employer contributions where the employee can’t afford to keep up their own contributions is a welcome trend – it’s a good sign that companies are not just recognising but working to ease the financial anxieties of their workforce.
However, it still means that people are missing out on the benefits of the usual full contribution. Maintaining these benefits and limiting the potential risk to future finances will require reviewing existing savings and seeking independent financial advice. As such, it is important that the Government and the regulator work closely to improve consumer access to advice – and exploring new methods of technology could be vital in achieving this.
A primary example is the long-awaited pension dashboards initiative. Designed to allow savers to quickly review all their pension pots online through a single platform, the scheme has been delayed several times.
In July, the Government pushed back its timetable for connecting the first two cohorts of pension schemes to the dashboards. Most people are expected to now have to wait until 2024 – five years behind schedule – to benefit from this advancement. Getting this back on track is vital as giving people easier, quicker access to their pension information through tech will be an important tool in ensuring they can make prompt and informed decisions.
Although, whilst access to pension information has the potential to transform engagement, consumers must not feel that they have to make sense of all this information alone. Instead, support is available in the form of independent financial advice. Whilst many might assume that advice is exclusively for the wealthy few, there are many providers which provide clients with affordable advice.
And Britons will soon see the value such advice can offer. After all, advisers consider the entirety of an individual’s financial situation, as well as their future goals and the wider economic environment, to provide tailored recommendations that suit an individual’s present and future needs. In doing so, Britons will be able to make informed financial decisions.
With energy bills predicted to rise even further as we enter the colder months, it’s likely that more will opt to sacrifice workplace pension contributions to balance their finances – potentially causing a great deal of financial self-harm later down the line. As such, it’s vital that Britons are encouraged to seek affordable advice to place themselves in the strongest financial position possible. And the Government needs to work closely with the regulator, and advisers themselves, to achieve a solution to this.
In doing so, they will empower individuals to use all the resources available to make positive financial decisions to safeguard their financial future.
*Andrew Megson is CEO of My Pension Expert, an Advised Retirement Income Specialist. Founded in 2010, My Pension Expert specialises in providing independent advice to UK consumers about their pension plans – it arranges millions of pounds worth of retirement income options each week. The company is entered on the FCA Register № 579999 at register.fca.org.uk.