Over one in 10 Brits cut back pension saving amid cost-of-living crisis

A combined £2.5bn of pension contributions could be 'lost' as a result of the cost-of-living crisis, analysis from Scottish Widows has suggested, after finding that 11 per cent of UK adults have already cut back or stopped their pension contributions.

The firm's latest Retirement Report revealed that savers in their 30s who reduced their contributions on average by £47 per month could have £1,000 less in their pension pot when they retire if they kept this lower level of contributions for a year.

Whilst it acknowledged that this may not seem like much, the provider pointed out that that savers could face a reduction in their pension at retirement of almost £23,000 if they do not get around to raising their contributions after the crisis has passed.

The long-term impact of lost contributions may also be more than expected, as the report revealed that savers in their 30s will have potentially contributed £7,000 less by 2024, with these lost contributions resulting in an overall £15,000 fall in the total pension pot at retirement due to the impact of lost compound interest.

The findings have heightened concerns over the impact of the current economic storm on savers, as the report found that 81 per cent of adults are concerned about making ends meet in the current crisis, with 76 per cent considering taking action to cope with the financial pressures.

These concerns are also shared by savers themselves, as the report found that over half (57 per cent) of those surveyed are concerned about their finances in retirement, while 50 percent do not feel they are preparing adequately for retirement.

The rising inflation has also prompted concerns as to where savers are holding their pension savings, after the research found that nearly a fifth (18 per cent) of savers have invested their pension savings in cash or cash-like assets, or low-risk assets such as UK government bonds; or that they are planning to invest their pension in such assets.

Based on this, the firn found that the average person between 35 and 54 years old who holds half of their £36,200 fully in cash could be exposed to losses of over £1,300 in a single year in real terms, and over £2,100 in two years.

Reflecting on the findings, Scottish Widows head of policy, Pete Glancy, acknowledged that there are no easy solutions, arguing that whilst it is understandable that households are being forced to make tough choices, it’s important they do so whilst taking a longer-term look at finances.

He continued: “Having a decent employer or personal pension in place is one of the best ways to plan for your future financial wellbeing, so people should think twice before making decisions that could result in long-term pain for a short-term gain.

“As a guide, we recommend that an individual should look to save a minimum of 12 per cent of their salary to secure a consistent quality of life, but aiming for at least 15 per cent is more likely to provide a comfortable retirement.

“There are also calls for another pensions commission, however, we believe the scope is too narrow. Record-breaking inflation does not just threaten peoples’ ability to save, it can also severely reduce the value of the savings they already have if they are not invested appropriately.

“The public policy aim should not simply be to help people accumulate the largest possible pension pot, but to explore creative and holistic solutions to help them enjoy the best possible standard of living in retirement.”

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