One-year pension break could cost savers almost £13,000 at retirement

Industry experts have raised concerns over the impact of the cost-of-living crisis on pension saving trends, after analysis from Standard Life revealed that even a one-year break in pension payments could leave savers almost £13,000 worse off in retirement.

The analysis showed that someone who began working with a salary of £25,000 per year and paid the standard monthly auto-enrolment contributions from age of 22, would have a total retirement fund of £456,893 at the age of 68.

However, pausing pension contributions at the age of 35 for just one year would result in a total pot of £444,129, which is around £12,764 less than if they had not stopped paying in.

The analysis also showed that stopping contributions for a longer period would have an even bigger impact, noting that a two-year break at age 35 could see savers £25,335 worse-off at retirement, while a three-year break could see this figure rise to £37,713.

The long-term impact of pausing contributions was highlighted as a particular concern amid the cost of living crisis, as Standard Life’s research also showed that around 6 per cent of savers were looking reduce their pension contributions in order to cut back expenses.

In addition to this, the research found that nearly all (93 per cent) savers have had their financial situation impacted by increasing costs and high inflation, up from 88 per cent in Q1 2022, while 93 per cent are feeling, or will feel, the effects of higher energy prices.

In light of the findings, the provider urged savers not to pause pension contributions and to instead shop around for better deals, set budgets, and review their current expenditure for potential areas of saving, such as subscriptions or memberships that are not used.

Standard Life managing director for customer savings and investments, Jenny Holt, commented: “Consumers have had to contend with a lot so far this year, and since April alone we have seen the increase to the energy price cap, higher national insurance contributions, as well as inflation recently reaching 9.1 per cent.

"This is of course taking its toll on people’s finances, with many having to cut back on spending and saving as a result.

“If possible, the first port of call should be to reduce spending – for example cutting back on unnecessary purchases and shopping around for better value deals.

"Doing this, rather than making decisions that will affect future finances such as reducing or stopping pension contributions, even if for a short period only, will be beneficial in the long term.”

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