The cost-of-living crisis could be resulting in a large cohort of savers eventually losing out on over a quarter of a million pounds in retirement savings, analysis from M&G Wealth has revealed.

The survey of over 2,000 UK adults found that a fifth (20 per cent) of those questioned either reduced or stopped contributing to their workplace pensions in direct response to the cost-of-living crisis.

However, the firm said this could be costing some savers up to £271,619 in lost pension income.

M&G Wealth's calculation was based on individuals reducing their monthly workplace pensions contributions from £200 to £100, and assuming a pension growth rate of 5 per cent per annum, retirement at the age of 67, and an expected lifespan of 87 years.

It also included an annual management charge of 0.75 per cent and does not account for inflation. The overall loss of £271,619 equated to a difference of £20,919 in annual income — or a reduction in monthly income from £3,479 to £1,736.

The firms also estimated that those looking to increase short-term money by temporarily halting payments for a three-year period before increasing their savings back to previous levels, could lose up to £59,158 in retirement.

For adults earning the average UK salary of £27,756 a year contributing the minimum auto-enrolment amount per month (£143.44), temporarily halting contributions for three years at aged 30 could impact their final pot by £21,7923, resulting in them holding a pot of £173,013, compared with a pot of £194,805 if they were to continue contributions at their current levels.

As well as pension contribution cuts, the survey found that 37 per cent of respondents have reduced their savings or investments, and a further 27 per cent of people plan to do so by next May.

The primary drivers of concern were the rising cost of living and interest rates, with 84 per cent of respondents worrying about inflation, and 72 per cent concerned about rising interest rates.

Half of those surveyed have also reduced their spending on everyday luxuries such as coffee, and eating lunch out. 44 per cent have reduced the amount they spend on their weekly food shop.

Reflecting on the findings, M&G Wealth pension specialist, Kirsty Anderson, said the cost-of-living crisis is continuing to place a strain on people’s bank balances, and many are having to take action to free up more cash for the here and now.

“However, while reducing pensions contributions might seem like a quick fix to free up money, savers need to be aware of the financial implications this could have for them later in life," she warned.

"Pensions are one of the most efficient and lucrative forms of saving, especially for those in companies with an employer-matching scheme, meaning there might be better ways of raising short-term funds. Our data shows that even taking a short break from your contributions could have a significant impact in retirement.

“In an environment where every penny counts, savers should equip themselves with as much information as possible before making changes — from the use of free online tools to the services of a financial adviser for those with bigger pots of money.”

Share Story: