Around 6 per cent of pension savers, totalling 1.5 million people, chose to reduce their contributions or halt retirement savings in the six months to January 2023 due to the rising cost of living, according to the Financial Conduct Authority’s annual Financial Lives Survey.
The survey also found that just 6 per cent of those who were 55 or older and had pensions in accumulation as of May 2022 cashed in all or part of their retirement assets over the six months leading up to January 2023.
But the research also indicates that pension scams continue to be a threat, despite the fact that since the introduction of the cold-calling ban in 2019, the number of persons reporting receiving an unsolicited approach has decreased by half.
AJ Bell head of retirement policy Tom Selby says: “Given the financial pressures millions of households were facing in 2022, one of the major concerns was this would hit the government’s flagship automatic enrolment reforms. The positive news is that in the six months to January 2023, just 6 per cent of pension savers had either reduced contributions or abandoned retirement saving altogether.
“Although in an ideal world everyone would stay in their workplace pension scheme, with inflation running as high at it has been, that simply isn’t realistic. Indeed, given the desperate circumstances many will have been facing, cutting back on retirement saving may have been the only option.
“If you are struggling with living costs and considering stopping or reducing pension saving, make sure you have considered all other possibilities before you go down this road. By opting out of your workplace pension, you are forfeiting your matched employer contribution as well as pension tax relief – and making it that little bit harder to build a decent-sized fund for your retirement. If you really feel there is no other option, make sure you have a plan to restart pension contributions when you are financially able to.
“The FCA’s data also lifts the lid on the UK’s pension ‘haves’ and ‘have nots’. The gender pensions gap remains a significant challenge, with 71 per cent of men building up a pension versus just 65 of women. This disparity is likely to be in large part because women are more likely to miss out on auto-enrolment, either due to taking career breaks to care for children or because their earnings are below the £10,000 trigger.
“The self-employed continue to be chronic under savers, with just 53 per cent saving in a pension compared to 84 per cent of employees. Tackling pension savings levels in this part of the labour market desperately needs to be pushed up the political agenda, otherwise millions of self-employed workers will be facing up to the prospect of living on next-to-nothing in retirement.”
Selby adds: “Another major fear was that rising living costs would spur people to raid their hard-earned retirement pots en masse. Again, the data suggests that, by-and-large, savers are acting responsibly and staying focused on their long-term goals.
“Among those aged 55 and over with a defined contribution (DC) pension in accumulation in May 2022, just 6 per cent (300,000 people) had either fully encashed their retirement pot or taken out a lump sum to cover day-to-day living costs as a result of surging prices. In many cases – particularly where the pension is relatively small or the alternative is taking on high-cost debt – this will have been a perfectly sensible decision.
“For anyone considering accessing their retirement pot today in response to the cost-of-living crisis, key considerations include ensuring your pension can still sustain you through retirement and keeping your income tax bill as low as possible. Taking all of your pension out in one go could result in you paying tens of thousands of pounds extra in income tax that could potentially be avoided if you spread your withdrawals out.
“It’s also worth considering whether just taking a portion of your tax-free cash entitlement is an option. This will allow you to retain your £60,000 annual allowance, whereas taking even £1 of taxable income flexibly will trigger the ‘money purchase annual allowance’, reducing your annual allowance to just £10,000.
“More worryingly, a significant chunk of the population continues to rely on the state pension, with two in five (40 per cent) of retirees citing this as their main source of income. Women were significantly more likely to list the state pension as their main source of income than men (51 per cent versus 31 per cent).
“For those saving for retirement today – and particularly younger generations – uncertainty over what the state pension will look like or when you will get it means it is crucial you take responsibility and save for yourself, ideally above auto-enrolment minimum levels. Failure to do this will leave you a hostage to fortune – and the whims of politicians.”
“The FCA’s survey casts a light into the levels of knowledge and engagement among UK adults – and the result aren’t pretty. Almost a third (30 per cent) of respondents had no idea how much they had saved for retirement, making it incredibly difficult for these people to know if they are on track for a decent standard of living or at risk of sleepwalking into financial penury.
“This is perhaps unsurprising given over £26 billion of pension money is considered ‘lost’, a number that has increased substantially in recent years in part as a result of the success of auto-enrolment. Pensions dashboards, which will eventually allow people to see all their pensions in one place, online, were supposed to be a big part of the answer to this problem.
“However, the government’s decision to kick these reforms into the long grass means savers will likely remain in the dark for years to come.
“More positively, the Treasury and the FCA have promised to publish a policy paper on tackling the blurred boundary between guidance and advice later this year. Sensible reform in this area is desperately needed to boost access to regulated advice and allow providers to offer more useful guidance to customers. This should in turn result in higher levels of engagement, better financial decisions by savers and ultimately good outcomes – the central aim of the FCA’s Consumer Duty.”
“Surging inflation and rising financial vulnerability are like blood in the water to scammers, and unsurprisingly large numbers of people continue to be targeted by unsolicited calls from fraudsters.
“While the number of people receiving suspicious calls remains high at 4.7 million, this figure has halved since a ban on cold-calling was introduced in 2019. Savers still need to be extremely wary and tool themselves with the knowledge to avoid potential scams, but there is now little doubt the ban – campaigned for by AJ Bell and others – has been successful in making the world a bit safer for millions of Brits.
“Unsolicited approaches remain extremely varied, ranging from offers of free pension reviews and enabling people to ‘unlock’ their retirement pot early, to ‘opportunities’ to invest your pension in something offering ‘guaranteed returns’. Just 8 per cent of those who received an unsolicited approach responded or took up the offer, while 3 per cent lost money – but that’s still 100,000 people facing a devastating hit to their retirement plans.
“If you receive an approach out of the blue about your pension or investments or see an offer online that seems too good to be true, do not engage and report it to Action Fraud. You should only ever deal with regulated companies and individuals when it comes to your pensions and investments and be sure to check they are who they say they are before handing over any money. Never be rushed into making a decision and if you are in any doubt at all, speak to a regulated financial adviser.
“Alternatively, the government-backed Moneyhelper guidance service and the FCA’s ScamSmart website provide lots of useful information and tips on how to keep your money protected from the clutches of fraudsters.”
