Halve Your Pension – and Risk Losing £270,000
New research suggests that savers who reduce their pension contributions in response to the cost-of-living crisis could end up £270,000 worse off when they retire.
According to a survey by global investment manager M&G Wealth, a fifth of savers have already decreased or stopped paying into their pension to cope with rising costs.
By doing so, they miss out on valuable tax breaks and the benefits of compound interest, which can significantly reduce the size of their retirement fund.
For example, if a worker who currently pays £200 into their pension each month decides to halve that amount to £100, they could end up £271,619 worse off when they retire, according to M&G Wealth.
Their annual income would be £20,919 – or £1,742 per month – less than if they hadn’t decreased their contributions. This calculation assumes a 25-year-old who pays in at this level until the age of 67, with a life expectancy of 87 and a growth rate of five per cent.
Cutting back: A fifth of savers have already decreased or stopped paying into their pension in order to cope with rising costs
A 30-year-old earning the average UK salary of £27,756 and making the minimum pension contribution each month would be £21,792 worse off if they stopped paying into their pension for three years.
Temporary halts in contributions can also have a significant impact. Not contributing for three years would leave a 30-year-old £59,158 worse off when they retire. The survey also found that two-fifths of respondents had reduced their savings or investments, with half of them cutting back on everyday items like shop-bought coffees.
Kirsty Anderson, a pension specialist at M&G Wealth, says, “Pensions are one of the most efficient and lucrative forms of saving, especially for those in companies with an employer-matching scheme. There might be better ways of raising short-term funds in an environment where every penny counts. Savers should equip themselves with as much information as possible before making changes.”
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