Pension savers who opt to stop pension contributions to cover the rising cost of living could face long-term consequences, warns Standard Life.
According to the pensions and savings group, even reducing or stopping pension contributions for a short period of time could have a significant impact on an individual’s final pension pot.
As an example, Standard Life said that someone that began working with a salary of £25,000 per year and paid the standard monthly auto-enrolment contributions from the age of 22 would have a total retirement fund of £456,893 at the age of 68. However, stopping pension contributions at the age of 35 for just one year would result in a pot of almost £13,000 less and if that period rose to two years, the total pot value would decrease by £25,335.
The warning comes as inflation hit a 40-year high and the impact on household finances takes its toll.
Research carried out by Standard Life showed that the vast majority (93%) of people believe increasing costs and high inflation are going to impact, or are already impacting, their financial situation, rising from 88% in the first quarter of the year.
Over three quarters (77%) expect to have to cut back on spending or saving, with 86% of those with a household income of less than £20,000 anticipating having to cut back.
Standard Life’s research, based on a survey of over 2,500 customers, also showed that if people had to cut down on expenses, 15% would put lehttps://professionalparaplanner.co.uk/wp-admin/media-upload.php?post_id=12190&type=image&TB_iframe=1ss money into savings accounts and 6% would reduce their pension contributions.
Jenny Holt, managing director for customer savings and investments at Standard Life, said: “Consumers have had to contend with a lot so far this year and since April alone we have seen the increase to the energy price cap, higher national insurance contributions as well as CPI inflation recently reaching 9.4%.
“If possible, the first port of call should be to reduce spending, for example cutting back on unnecessary purchases and shopping around for better value deals. Doing this, rather than making decisions that will affect future finances such as reducing or stopping pension contributions, will be beneficial in the long term.”