One in six workers cut pension saving to cope with rising bills

A growing number of men and women could hurt their future retirement prospects by cutting back on retirement savings, new research finds.

Some 15 percent of men and 16 percent of women had reduced pension contributions by the end of the summer to cope with rising prices, according to research from financial services firm Scottish Widows.

That compared to 12 percent and 10 percent, respectively, when the same cost-of-living survey was conducted in the spring.

The trend is picking up speed among women, who are also more concerned about the cost of living, the company found.

Employees facing financial pressures are being urged by financial experts not to stop or reduce pension contributions because of the damage it could do to their finances when they retire.

Scottish Widows calculates that a 40-year-old who reduces his pension savings by around £150 a month for a year could have more £3,000 less in his pension pot, including investment returns, by the time he retires.

If you reduce your savings by stopping employer contributions, you will also miss out on employer contributions, it says.

And if the reduction in contributions is never reversed, the reduction in pension savings could exceed £62,000 by the time you retire, assuming a current age of 40, a retirement age of 65 and a real return on investment of 2 percent.

Meanwhile, unequal lifetime earnings and periods of unpaid care work mean that women are now retiring with pensions 60 percent larger than men’s.

Men aged 65 to 74 on average have more than £250,000 in pension assets, compared to women of the same age who have less than £150,000.

The gender income gap also means that women are more concerned about rising bills than men, according to the study.

Some 88 percent of women say they are concerned and 42 percent are very concerned about the rising cost of living, with those aged 35 to 54 being the most concerned, the company found.

About 80 percent of men are concerned and 36 percent are very concerned about rising bills.

According to the Scottish Widows report, men earn an average of £30,900 a year and women £21,900 as the latter do more childcare and part-time work.

Scottish Widows found a bright spot in terms of more men and women meeting their benchmark of having enough savings to prepare for retirement.

Adequate is defined as saving at least 12 percent of income for aging, and the percentage of women achieving this has increased from 50 percent a decade ago to 61 percent, roughly equal to that of men.

According to the company, the progress was likely due to its successful auto-enrollment policy in pensions.

Meanwhile, Scottish Widows has taken a closer look at how much people from ethnic minorities are paid and what they save for retirement. It found:

– There is considerable variation in pay between ethnic groups, with Chinese women earning more than 25 percent more than white British women and slightly more than white British men

– However, Pakistani women earn nearly 10 percent less than white British women and more than 25 percent less than white British men.

– Black Caribbean women earn 8 percent more than white British women, but black African women earn 2.6 percent less.

– Pakistani and black ethnic groups are more concerned about the rising cost of living

– Indian people reported some of the lowest levels of cutting back on essentials

– White British and Indian households have broadly similar levels of total wealth of over £300,000, but white households have nearly twice as much private pension wealth, while Indian households have more wealth in homes and other assets

– Other ethnicities have much less wealth, especially Black Caribbean and Black African households – see below.

Scottish Widows also found that single mothers struggle to save for retirement because they have only one source of income and additional costs and responsibilities in raising children. It found:

– About 40 percent of single mothers are not affiliated with a pension fund, compared to 29 percent of women overall

– Single-parent households, of which 90 per cent are women, have an average of £29,000 in assets, including pensions

– That compares to a couple with dependent children who have an average of £275,000 in assets

– Single-parent families spend 87 percent of their income, two-parent families about 67 percent

– About 19 percent of single mothers are reducing retirement savings in response to the rising cost of living.

Scottish Widows surveyed more than 5,000 adults earlier this year, weighted to be representative of the UK population by age, sex, region and social class.

Jackie Leiper, managing director of workplace savings at the company, says: ‘The persistent gender pay gap persists for women in the UK.

Our research shows that single mothers are much more likely to be financially exposed, cutting back in ways that jeopardize their well-being.

“Current economic conditions make it more difficult than ever to resolve the deep inequalities that underlie the pension gap, with women’s retirement savings heavily impacted by major life events such as divorce or motherhood.

“Providers, regulators and employers urgently need to work together to tackle this crisis – from rethinking the automatic enrollment threshold to much greater investment in childcare support – to help the most vulnerable in the short term.”