Pension savers who reduce their pension contributions to combat the rising cost of living risk losing out on thousands of pounds, new data from Broadstone has shown.
The consultancy group said a 25 year old on an average salary could miss out on as much as £60,000 – a quarter of their total pot – if they reduce their contributions by 2%, assuming their employer continues to make a 3% contribution. Meanwhile, a 35 year old would lose out on nearly £40,000 and a 55 year old could see their savings dip by £10,000.
Broadstone warned that losses could be further exacerbated if employers stick rigidly to scheme rules and reduce their own contributions to employee pension plans if employee contribution levels fall below the normal scheme minimum.
Rachel Meadows, head of pensions and savings at Broadstone, said: “As household budgets are squeezed more and more towards the end of this year, it is unrealistic to expect all pension savers to maintain their current contribution levels.
“It is crucial that the pensions industry works with schemes and employers to ensure when cost of living pressures start to recede that these temporary reductions do not become permanent.”
Broadstone is calling upon employers and schemes to maintain records of staff that reduce contributions in order to contact them going forwards to encourage them to restore payments back to the recommended levels. In addition, Broadstone wants employers to apply rapid pragmatism to their pension scheme rules to ensure that employer contributions are not reduced if employees are forced to reduce their own pensions savings levels.
Meadows added: “For the sake of our future retirees and to save greater dependency on the state in retirement, we must get this right.”
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