The number of savers choosing to opt out of their company pension scheme has increased by 29 percentage points from March to July this year, potentially costing new entrants to the workforce up to £28,000, according to research from Penfold.

The rise in opt outs comes as household finances are increasingly stretched, with inflation recently reaching a 40-year-high of 9.4 per cent and many facing rising bills, fuel and grocery costs.

The findings have prompted concern over the long-term impact of pausing pension contributions amid the cost-of-living crisis, with estimates that some savers could miss out on as much as £28,000 at retirement.

The analysis from Penfold showed that a 20-year-old contributing £200 per month pausing contributions for three years would see the value of their final pension pot at retirement will fall by £28,074, from £268,675 to £240,600, a more than a 10 per cent decrease.

Meanwhile, a 25-year-old contributing the same amount could expect to see their pension pot fall by £24,779 if they pause contributions for three years, while a 30-year-old would see their pot fall by £21,870 by the time they reach retirement age.

Commenting on the findings, Penfold co-founder, Pete Hykin, acknowledged that the pressures facing today’s savers are considerable, clarifying however, that it is "vital" that those people who are financially able to pay into their pension continue to do so.

He continued: “The increasing number of opt-outs is a worrying trend, especially as the impact of pausing contributions, even for just a short period, can have a hugely detrimental impact on an individual’s finances in retirement, especially for those starting out in their career.

“Auto-enrolment providers and employers need to work together to educate and empower employees to make the right financial decisions during these turbulent economic times. If employees are unaware of the consequences of pausing contributions for a few years, it can feel like an easy decision to make.

"But this is not operating in a context where they have all the information to make an informed decision.

“At Penfold, we want to support savers through this by providing greater flexibility on how much and how often they save into their pension, especially when finances are tight.

“Offering people tools which can create savings goals and help individuals stick to these goals by breaking down how much they need to save every month will be crucial.

"It’s also key that providers offer easy access to pension experts who can help people make the right choices when it comes to managing their pension during a tougher economic climate.”

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