Pausing pension contributions in April due to the ‘triple whammy’ of increasing inflation, a freeze in income tax thresholds and the rise in National Insurance could be dangerous for savers, Aegon has warned.

With the latest inflation rate showing CPI sitting at a 30-year high of 7 per cent and people looking for ways to relive financial pressures in the coming months, Aegon has suggested that many could be tempted to pause workplace pension contributions.

Aegon analysis showed a one-year pension contribution break could mean a 25-year-old on average earnings, and contributing the minimum auto-enrolment level, could miss out on £4,600 at state pension age.

The firm also revealed that pausing for two or three years could lead to missing out on £9,100 and £13,600 respectively.

Whilst also losing out on their own contributions, Aegon warned that a one-year break would mean missing out on £683 of contributions from their employer, warning that “forfeiting these valuable contributions effectively means you lose out on ‘free’ money from the employer”.

Aegon head of pensions, Kate Smith, commented: “When people’s pay for April hits their bank accounts, it will drive home the impact of the cost-of-living squeeze.

“Following the government’s announcement last September that National Insurance rates would rise by 1.25p in the pound to support the NHS and social care funding, April has been earmarked as the month when employees would see their tax burden rise.

“This is being compounded by the continued freeze on income tax bands dragging more people into paying a larger proportion of their salary on income tax as wages rise.

“However, since these decisions were made, inflation has risen to a 30-year high eroding the purchasing power of take-home pay at an alarming rate.

“This ‘triple whammy’ of factors hitting April’s pay packets will no doubt cause people to look to areas that can ease the financial pressures. However, those looking to cut back on their pension contributions should carefully consider the long-term effects before making any decisions.

“While there may be a small immediate boost to take-home pay, Aegon analysis shows it could leave you thousands of pounds worse off in retirement. What’s more, employees who pause pension contributions will very likely lose valuable employer contributions which help to boost retirement savings.”

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