A recent study reveals that over 20% of British citizens have made the difficult decision to reduce or completely halt their pension contributions due to the ongoing cost of living crisis. This data coincides with the CEO of Abrdn, one of Britain’s largest fund managers, calling for a doubling of minimum pension contributions to address the imminent retirement incomes crisis.
With real wages declining and expenses skyrocketing, millions of individuals are actively seeking ways to decrease spending and increase their income. As a result, some have concluded that they cannot currently afford to save for retirement.
According to a survey conducted by investment platform Hargreaves Lansdown, 22% of survey respondents have either stopped (14%) or reduced (8%) their pension contributions during the cost of living crisis. Men were more likely than women to have taken these actions.
Interestingly, younger individuals are more prone to cutting or stopping their pension contributions compared to older demographics. Almost one-third of respondents in the 18-34 age group have done so, whereas only one-fifth of those aged 35-54 have taken similar steps.
Furthermore, a study by insurer Scottish Widows indicates that 35% of people are not on track to achieve a minimum retirement lifestyle, as defined by prominent pension organizations. This places them at risk of struggling to afford essential necessities like food and heating in their old age.
Helen Morrissey, the head of retirement analysis at Hargreaves Lansdown, acknowledges the challenges posed by rising prices, stating, “Rising prices have made balancing budgets a real struggle, and it’s no surprise that, after making all the cuts they can elsewhere, people are turning their attention to their pensions.” She emphasizes the importance of resuming pension contributions as soon as individuals are financially able to do so, despite the understandable focus on immediate financial pressures.
For the past decade, the UK has implemented an “auto-enrolment” system, which mandates that employers automatically enroll eligible workers in a workplace pension. Both the worker and employer contribute to this pension, with a minimum contribution of 8% of the worker’s salary. This consists of 3% from the employer, 4% from the employee, and 1% tax relief from the government.
However, Stephen Bird, CEO of Abrdn, cautions that the minimum 8% contribution is far from sufficient. He warns that increasing this figure is crucial to mitigate the looming retirement incomes crisis and proposes aligning it with levels seen in other developed countries.
The TUC has previously highlighted that some workers are choosing to opt out of workplace pension schemes entirely due to financial difficulties. Experts firmly advise against this, as it means individuals miss out on valuable employer contributions and potential investment growth.
In conclusion, the cost of living crisis in the UK has led to a significant number of people reducing or halting their pension contributions. The need to address potential retirement incomes crises has prompted calls for an increase in minimum pension contributions. Despite financial challenges, it is crucial for individuals to resume saving for retirement as soon as they are able to do so. Opting out of workplace pension schemes entirely is not advisable, as it results in missed opportunities for employer contributions and long-term growth.
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