Workers suspend retirement savings as cost of living crisis rages
Workers struggling to make ends meet are urged not to give up on retirement savings to preserve cash, as they risk losing thousands of pounds in regular retirement income.
The warning from retirement experts came as research found that more and more employees are putting their retirement savings on ice to help manage their finances amid the cost of living crisis.
In a study, one in 20 UK adults said they had stopped their monthly company pension contributions in response to cost pressures. Another 6% of 2,000 survey respondents from Canada Life, a retirement plan provider, said they were considering putting their retirement savings on hold, while another 9% might consider doing so in the future. coming.
“The growing cost of living crisis is putting incredible pressure on people’s finances,” said Andrew Tully, CTO of Canada Life.
“With economists expecting inflation to peak in double digits later this year, the pressure on the country’s finances will only get worse.”
Canada Life said the temporary withdrawal could leave a saver with thousands of pounds less in retirement.
His modeling revealed that a 40-year-old man earning £50,000 a year who suspended pension contributions by 8% for a year would have around £15,000 less in his pension when he retired at 67.
The findings of the survey conducted in April have been taken up by other suppliers. Standard Life, one of the UK’s largest pension companies, said three quarters of its customers expected to cut spending or savings in response to the cost of living crisis.
The Standard Life survey, conducted in May with around 2,600 customers, found that if they were to cut spending, 15% of respondents would put less money in savings accounts and 6% would reduce their contributions by retirement.
“Consumers have had to deal with a lot so far this year, and since April alone we have seen the energy price cap increase, higher national insurance contributions, as well as inflation recently hitting 9.1%,” said Jenny Holt, director. Director of Client Savings and Investments at Standard Life.
“This of course has an impact on people’s finances, with many of them having to cut spending and saving accordingly.”
Experts said while it was understandable that people were looking for ways to manage their household finances, they should think very carefully before stopping their monthly pension payments.
One of the most obvious impacts for those retiring from a workplace pension plan is the loss of the employer contribution, a minimum of 3% of pensionable earnings, for self-employed workers. -registered. Over time, employer contributions can bolster a retirement pot as savings grow.
“Withdrawing from a pension, even temporarily, can be costly in the long run,” said Claire Trott, divisional director of retirement planning at St James’s Place, the wealth management group.
“If an employee uses the wage sacrifice to pay their pension contributions, they will also save on National Insurance as well as tax. So if you factor that in, along with the loss of employer pension contribution, stopping retirement savings could be more costly than expected.