Nearly a fifth (18 per cent) of those with a pension have stopped contributions in the past few months amid the cost-of-living crisis, while a further 5 per cent have cut their contributions, research from the Financial Services Compensation Scheme (FSCS) has revealed.

Despite this, the research suggested that consumers are likely to think they have already absorbed the impact of the cost-of-living crisis when it comes to pension contributions, with those likely to adjust pensions contributions having already done so.

Indeed, the research showed that 64 per cent of those with a pension have kept their contributions unchanged over the past few months, while a further 87 per cent of them also expect to keep the contributions the same in the next six months.

In contrast, only a small minority (6 per cent) expect to either decrease or stop contributions altogether, while a further 7 per cent are hoping to be able to increase their contributions.

However, a change in pension contributions was not the only impact of the rising cost of living, as 29 per cent of those eligible to draw on their pensions (age 55+), have moved money out to cover day-to-day costs, while an additional 17 per cent have opted to move money from their pensions to invest elsewhere over the past few months.

The survey also found that, in the next six months, a further 17 per cent of those eligible are likely to move money out of their pension to cover day-to-day costs, while 12 per cent are likely to do so to invest it elsewhere.

The most common action though, was to make changes to the funds where the money is invested, with 44 per cent of respondents saying they have done so in the past few months, while 28 per cent have consolidated different pension pots into one, and 13 per cent changed pension provider.

The FSCS also suggested that consumers are likely to continue monitoring their arrangements and making similar adjustments accordingly over the next six months, suggesting that these actions can help consumers save money in fees and make the most of their investments.

However, the FSCS also warned that whilst savers cutting pension contributions or taking their pension early could receive a temporary relief and help cover day-to-day costs, a prolonged reduction in pension contributions could derail retirement plans.

The FSCS therefore highlighted the findings of the research as demonstration of the need to raise awareness and understanding around how pensions and investments are protected to prevent future harm.

FSCS chief communications officer, Lila Pleban, said: “Claims involving pensions and investment advice are now the most common claims that FSCS receives and are often the most complex and costly to resolve.

"Understanding what consumers are doing today in response to current economic conditions can help us predict what may land at our door in the future, supporting us to find effective solutions that can protect consumers and prevent financial harm.

"When money is tight, it’s inevitable that alongside compromises and budget planning some people are likely to take more risks, which could plunge them further into financial difficulties.
Whatever consumers choose to do with their money, it’s important they understand if and how their investments are protected.

"Sharing knowledge and insights across the industry can help consumers make informed decisions about their finances so they can feel confident their money is safe.”

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