Third of Workers Cutting Pension Contributions

The cost of living and higher interest rates causing mortgages and rents to rise dramatically over the last 18 months have forced a third of workers to reduce or stop pension contributions entirely according to Royal London.

In their research, Royal London found that:

• 18-34 year-olds – 49% of workers cut pension contributions or stopped them, perhaps the hardest hit sector with less equity (larger loan to value mortgages and a higher proportion or renters for singles, young couples or young families.
• The average younger worker with an average salary of say £35,000 has reduced pension contributions of £1,404 pa (when matched by employer contributions) meaning a long-term reduction is annual pension of £4,092 pa (in today’s money) if pension contributions are not recovered and back on track quickly.
• This could equate to a pension reduction of £10,575 pa if these cuts are not recovered over the next 20 years.
• At the higher end, if you are earning £70,000 pa with an 8% pa employer matched contribution, if you have stopped or reduced pension contributions, Royal London forecast at reduction in pension of £12,192 pa in 20 years.

Comment

The less you save in pensions, the less you may get from your employer, and you are ultimately hitting your longer-term financial security.  We know times are hard at present but if you have kept your TV, movie and sport subscriptions or are still going on nice foreign holidays, have kept a newer car or keep getting the latest mobile phone at the expense of your pension, then you need to look at your priorities. 

We suggest after food, fuel bills and a roof over your head, your insurance protection and your pension contributions are the next priority of any daily living expenses rather than smoking, drinking, phones, holidays, and gym membership.  Do you really wish to retire in poverty?

If you are struggling, look at your budget and try to make cutbacks elsewhere before your pension contributions.  It will stand you in good stead in the long term.  That said, if there is no room for further cutbacks and you had hit ‘the wall’ then of course, pension contributions will reduce.