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The rising number of savers reducing or pausing their pension contributions to balance high living costs – even for as little as three years – could risk losing tens of thousands of pounds in retirement.
New research from M&G Wealth shows that individuals reducing their monthly workplace pension contributions from £200 to £100 could cost them up to £271,619 in their total pension pots.
According to the firm, this would represent a difference of £20,919 in annual income, which translates to a reduction in monthly income from £3,479 to £1,735.75.
The figures, calculated by the Prudential Retirement Modeller, assume a 25-year-old and their employer halves contributions to a combined £200 a month, which remains at this level until the age of 67. Meanwhile, contributing £200 a month matched by an employer would garner a much more sizeable £543,238 pot.
Kirsty Anderson, pension specialist at M&G Wealth, said: “The cost of living crisis is continuing to place a strain on people’s bank balances, and many are having to take action to free up more cash for the here and now.
“However, while reducing pension contributions might seem like a quick fix to free up money, savers need to be aware of the financial implications this could have for them later in life.”
Ms Anderson said pensions are “one of the most efficient” and “lucrative” forms of saving, especially for those in companies with an employer-matching scheme.
She said: “There might be better ways of raising short-term funds. Our data shows that even taking a short break from your contributions could have a significant impact in retirement.”
For those looking to increase short-term money by temporarily halting payments for a span of three years before increasing back to previous levels, M&G experts said it would still cost them up to £59,158 in retirement.
For adults earning the average UK salary of £27,756 a year contributing the minimum auto-enrolment amount per month (£143.44), temporarily halting contributions for three years at age 30 could impact their final pot by £21,792.
This could leave them with a pot of £173,013 compared to a pot of £194,805 if they were to continue contributions at current levels.
In addition to pension contributions, the survey found that almost two-fifths (37 percent) of respondents have reduced their savings or investments, and a further 27 percent of people plan to do so by next May.
The primary drivers of concern were the rising cost of living and interest rates, with 84 percent of respondents worrying about inflation, and 72 percent concerned about rising interest rates. Up to 30 percent have also reduced spending on financial advice and half of those surveyed have reduced spending on everyday luxuries like coffee and eating out.
Up to 44 percent have also taken steps to reduce the amount they spend on their weekly food shop, as shopping basket prices remain high.
Ms Anderson said: “In an environment where every penny counts, savers should equip themselves with as much information as possible before making changes – from the use of free online tools to the services of a financial adviser for those with bigger pots of money.”
