A third (33 per cent) of all workers have investigated reducing or stopping their pension contributions in the past two years, rising to 49 per cent of workers aged 18-34, according to research from Royal London.

The survey found that just over one in ten (12 per cent) pension savers are already reducing the amount they pay into workplace savings, primarily due to the cost-of-living crisis, cited by 55 per cent of savers, and rising mortgage costs (15 per cent).

However, the firm raised concerns that decisions taken to boost take home pay in the short term could have a dramatic impact on people’s future wealth, arguing that whilst cutting pension contributions may seem a good solution for current cash flow woes, it will impact the long-term pension value, especially for higher earners.

Royal London pointed out that not only do savers attract tax relief on the money that goes into their pension, but they will also receive employer contributions, with an employee earning £35,000 a year potentially missing out on £341 per month or £4,092 per year in pension savings, as a result of lost matched contributions and tax relief.

In addition to this, it noted that pension wealth benefits hugely from compounding, with analysis from the group suggesting that, in 20 years’ time, the £4,092 could have boosted the pension pot by £10,575 had the contributions not been paused.

The difference was even starker for a higher rate taxpayer on a salary of £70,000, as the analysis showed that while they could bump up their take home pay by £3,360 a year by stopping pension contributions, their pension pot would be worse off by £12,192 in the period.

This means that their pension saving would be worse off by a projected £31,508 in 20 years’ time had they not taken a one-year pause.

Royal London senior pensions development manager, Justin Corliss, stated:
“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.”

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