Pausing pension contributions could cost people thousands of pounds in retirement income over the longer term, warns Royal London.
The retirement specialist said in the past two years, a third (33%) of all workers have explored reducing or stopping their pension contributions, rising to nearly half (49%) of workers aged 18-34, as the cost of living crisis took its toll.
Stopping pension savings could increase take home pay by £1,404 per year for those earning £35,000 a year, but it would mean losing out on £4,092 pension savings a year, according to Royal London.
The impact of compounding means the longer money is invested, the more it could grow. Over 20 years, the £4,092 could have boosted a pension pot by £10,575 through investment growth had contributions not been paused.
For a higher rate taxpayer on a salary of £70,000, the difference is even greater. While stopping pension contributions could increase their take home pay by £3,360 a year, they would lose out on £12,192 in pension savings. In 20 years time, their pension savings would be worse off by a projected £31,508.
Justin Corliss, senior pensions development manager at Royal London, said: “It will come as a surprise to many just how much you stand to lose by opting out of your workplace pension for one year.
“With the cost of living, driven in particular by mortgage payments and rent, ramping up, workers across the earnings spectrum are having to juggle their finances. However, the decision to pause pension contributions is one that needs to be weighed up carefully, especially for those at the start of their career.
“Stopping or reducing contributions might be necessary for some, but it’s vital that decisions aren’t taken on a whim. The figures show that the money gained in the short term doesn’t appear great value when compared to what’s being given up in the longer term.”
