Pension savers warned ‘costliest decision’ could mean £36,000 less in retirement

A three year pension payment break at the start of your career could mean £36,000 less in retirement – with those who put off pension saving for longer missing out further.

Inflation and rapidly rising interest rates have taken their toll on households and had a significant impact on finances, with many people understandably having to focus on making ends meet in the short term rather than the future.

While these unprecedented pressures have made saving a huge challenge for many people, analysis from Standard Life, part of Phoenix Group shows the big impact even a short contribution break can have on overall retirement pots.

The relatively small number of people who were auto-enrolled and chose to opt out of their workplace pensions during the Covid pandemic will be at or reaching the three-year point where they will begin to be automatically re-enrolled in their scheme.

However, during the period of opting out, they may have missed out on significant pension savings.

For example, someone that began working with a salary of £25,000 per year in 2020 and paid the standard monthly auto-enrolment contributions (five percent employee, three percent employer) from the age of 22, could amass a total retirement fund of £459,000 at the age of 66, not adjusted for inflation.

However, opting out of pension contributions for three years at the start of their career could result in a total pot of £423,000 – £36,000 less than if they had not stopped paying in.

Opting out of auto-enrolment and their workplace pension for a longer period could have an even bigger impact.

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Gail Izat, Managing Director for Workplace at Standard Life, said: “Households have had a great deal to contend with over the past three years, with many having to cut back on spending and saving as a result.

“While cutting back on long-term saving might seem like the least harmful of a bunch of bad options, particularly earlier in life, it could result in people missing out on tens of thousands of pounds in retirement.”

Pensions expert Richard Hulbert has also warned that people opting out of workplace pensions to save money could be doing themselves long-term damage.


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New research from Defaqto shows that 17 percent have either reduced or stopped their pension contributions and 15% expect to reduce or stop in the next year.

Pensions expert and insight consultant at Defaqto, Richard Hulbert, said: “In the current financial situation, workers are tempted to reduce pension payments to boost their take-home pay, especially younger workers.

“However, opting out may be the costliest decision most employees ever make, both today and in retirement.”

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