One in five pension savers have either stopped or reduced their pension contributions in the last twelve months and a further 20 per cent are considering doing so over the coming months, according to figures from the Pensions Management Institute.
The research found 75 per cent of working people are ‘concerned’ that the Cost of Living Crisis will mean that they will experience a less comfortable retirement, prompting fears that the impact of post-Christmas debt and higher energy bills in 2023 could lead to a significantly reduction in pension saving.
The research shows most retirement savers have so far continued to pay contributions to registered pension schemes, despite pressures on household incomes, but the PMI says there is strong evidence that this may change. The research reveals that of those saving into a pension scheme over the past twelve months, 13 per cent have reduced their contributions and a further 20 per cent are considering doing so over the coming months. It found 7 per cent of those polled have already ceased their contributions.
The PMI expects the proportion of those feeling financial pressure will continue to rise, possibly rapidly, particularly when the cost of Christmas and higher energy bills next year are felt. Energy bills are set to rise in April 2023 as the Energy Price Guarantee for the average household will increase from £2,500 to £3,000 – a 20 per cent uplift from its current level.
A need to make savings has not been confined to contributions. Of those old enough to do so, 17 per cent have withdrawn money from their pension savings to meet short-term needs.
Over 75 per cent of workers were concerned that the Cost of Living Crisis would have a detrimental impact on their plans for retirement. 70 per cent believed that they would have to defer retirement. Workers typically expect they will need to work for an extra three years to due to the crisis. 28 per cent believed that they would never be able to retire at all.
PMI President Sara Cook says: “The pressures of meeting short-term needs for cash have forced many people to make decisions which could have serious implications for their longer-term financial security. Our research shows that a significant proportion of the General Public is saving at rates that are lower than they were twelve months ago. They are aware of the impact this will have but feel that they have no alternative. By reducing or stopping contributions altogether, savers will be subject to a ‘Double Whammy’ in that they will not enjoy the benefits of tax relief or employer contributions. Our research serves as an early warning that the public is finding it harder to take a longer-term view of retirement saving when short-term pressures have become so great.
“It is tragic that all the good achieved by automatic enrolment over the last decade might be undone by desperate people being forced to make short-term decisions at the expense of their longer-term security. Concern about the consequences for retirement of the current crisis was shared equally across all age groups, all income levels and all regions. The nation as a whole has lost confidence in its prospects for a comfortable retirement, and that is something that should alarm us all.”