One in five is cutting back or scrapping his pension savings, risking a worse pension

One in five people has reduced their pension contributions or stopped saving for retirement due to tighter household budgets, research shows.

Men, the young and those on higher incomes are the most likely to have cut or reduced pension contributions altogether, despite the serious damage this is doing to their finances in the long run.

Inflation also means people have to save even bigger pensions than ever before to fund a decent old age.

According to the Hargreaves Lansdown survey, about 14 percent of people have stopped saving for retirement and 8 percent have reduced contributions.

Only 25 percent of men have done this, compared to 18 percent of women. And 31 percent of 18 to 34 year olds have cut back, compared to 20 percent of 35 to 54 year olds and 17 percent of those over 55.

Wealthier people are more likely to have cut spending, despite the government’s previous budget making pension tax exemptions more generous for the well-to-do.

Hargreaves’ research shows that 35 per cent of extra taxpayers (earning more than £125,140 – see box below) have stopped or reduced their contributions.

About 38 percent of higher-rate taxpayers have done so, and 18 percent of base-rate taxpayers.

“One possible explanation could be that higher income earners are more exposed to the high mortgage rates we are currently seeing and they are more likely to have floating rate debt, which may put them in a position now where they need to cut spending,” says Helen. Morrissey, head of pension analysis at Hargreaves.

Meanwhile, some 62 percent say they have not changed their approach to pension contributions.

Hargreaves surveyed about 2,000 adults, weighted to be representative of age, income and geography.

What damage can stopping pension savings do for pension funds?

If you don’t save for a pension for five years in your 20s, it could leave a £114,000 hole in your final pension pot, and if you don’t make any payments for 10 years, you’ll lose a whopping £202,000, according to one study.

It focused on slowdowns around your 20s, which have a major knock-on effect due to the loss of compound growth — return on return — which takes time to make itself felt.

However, gaps will have a lasting impact at any point in your life unless you can make an effort to fill them later.

Those who have no choice but to stop paying pensions to pay food bills and keep a roof over their heads are being urged by money experts to consider this only a temporary solution until their financial situation improves.

“Rising prices have made balancing budgets a real struggle, and it’s no surprise that people, after making all sorts of cuts elsewhere, are turning their attention to their pensions,” says Morrissey.

Such actions are understandable. Maintaining pension contributions is of great importance, but given the enormous pressure our finances have been under for so long, it makes sense that people prioritize the here and now.’

How do you get your pension back on track if you stop or reduce the premium?

Helen Morrissey of Hargreaves Lansdown offers the following tips.

1. Make sure that you resume your pension contributions as soon as possible as soon as things improve.

Make a regular note in your calendar to remind you to assess whether you can afford to reboot or it might be something you don’t get around to.

2. Auto-enrollment means you’re re-enrolled every three years, but ideally you don’t want to stop saving for retirement for three years unless you really have to.

Nor will it pick up the people who have cut their contributions instead of stopping them and who risk being stuck at a lower premium level for longer than they had planned.

3. Increase premiums if you get a raise or get a new job.

If you do it right away, you won’t get used to the extra money.

4. It’s also worth checking if your employer has a matching system where they increase their contribution to your pension if you increase yours.

This can really help you get your retirement planning back on track after a rough time.

How do you arrange your pension if you are afraid it will fall short?

1) If you’re worried about whether you’ve saved enough, research your existing pensions. Broadly speaking, you should ask schematics the following questions.

– The current fund value.

– The current transfer value – as there may be a penalty associated with a move.

– Whether the pension is part of a final salary or defined contribution scheme. Defined Contribution Pensions take contributions from both the employer and employee and invest them to provide a pot of money at retirement.

Unless you work in the public sector, they have now largely replaced the more lavish gilt defined benefit – average career or final salary – pensions that provide a guaranteed income after retirement until your death.

Defined-contribution pensions are more meager and savers bear the investment risk, rather than employers.

– Whether there are guarantees – for example a guaranteed annuity – and whether you would lose them if you moved the fund.

– The pension projection on retirement age. You can use a retirement calculator to see if you have enough. These are available online everywhere.

2) You need to add the forecast figures to the amount you expect to receive in state pension, which is currently £203.85 a week or about £10,600 a year if you qualify for the full new rate. Request an AOW forecast here.

3) If you’re tempted to pool your old pensions, read our guide first to make sure you don’t get fined.

4) If you have lost track of old pots, you can use the The free government pension tracking service is here.

Be careful when searching online for the Pension Investigation Service, as many companies with similar names will appear in the results.

These also offer to look for your pension, but try to charge or flogging you for other services, and this can be fraudulent.