Warning over cost of pausing pension contributions

A third of workers have looked to reduce or top their pension contribution in the past two years, with nearly a half of under 34s doing so mainly in response to rises in the cost of living and mortgages, according to a new survey.

The survey by Royal London estimates that stopping pension savings may bump up take home pay by £1,404 per annum, but would mean losing out on £4,092 pension savings a year for workers earning £35k due to employers matching contributions and tax relief. Royal London says that amount could be even larger the longer pension money is invested.

Those on higher wages risk losing the most. The Royal London calculates that, for a higher rate taxpayer on a salary of £70,000 and 8% matched pensions contributions,  pension pots would shrink by £12,192 if contributions were paused for a year, rising to a projected £31,508 in 20 years’ time.

The survey of over 6,000 adults says 12% of pension savers are reducing the amount they pay into workplace savings, with the cost of living cited by 55% and rising mortgage costs by 15%.

Justin Corliss, senior pensions development manager at Royal London, said: “It will come as a surprise to many just how much you stand to lose by opting out of your workplace pension for one year.

“With the cost of living, driven in particular by mortgage payments and rent, ramping up, workers across the earnings spectrum are having to juggle their finances. However, the decision to pause pension contributions is one that needs to be weighed up carefully, especially for those at the start of their career. Stopping or reducing contributions might be necessary for some, but it’s vital that decisions aren’t taken on a whim. The figures show that the money gained in the short term doesn’t appear great value when compared to what’s being given up in the longer term.”

Meanwhile, a poll from asset manager Abrdn shows that 58% of UK adults over 40 are anxious about the prospect of retiring, with many having to dip into savings as the cost-of-living climbs. The poll found that almost 40% are concerned they might not have enough money to last them through retirement, with 13% delaying their retirement plans because of the cost-of-living crisis. And research by Citizens Advice shows 27% of British adults are behind on at least one bill, while a fifth of people have had to borrow money to pay for essentials like food in the last six months.

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