New calculations from Standard Life suggest that people who pause their workplace pension contributions for just a year due to cost of living pressures may end up thousands of pounds worse off in retirement than if they had continued.
The pension provider calculated that someone who started working with a salary of £25,000 per year and paid the minimum contributions from the age of 22 could end up with nearly £457,000 in retirement funds, but if they paused at the age of 35 for just one year, they could end up with just over £444,000 by the age of 68 instead - nearly £13,000 less than if they had continued to pay in.
Someone stopping for two years could end up around £25,000 worse off in retirement and someone pressing pause for three years could be nearly £38,000 short of what they may otherwise have accumulated. The calculations were based on various assumptions, including certain levels of investment growth, salary growth and annual charges.
Standard Life stressed that this was a specific example and should not be used to accurately represent exactly what might happen to anyone on that salary paying into a workplace pension.
Standard Life also surveyed 2,500 customers and found that, if they had to cut down on expenses, 15% would put less money into savings accounts, and 6% would reduce their pension contributions.
The vast majority (93%) said that increasing costs and high inflation are going to have an impact, or are already having an impact, on their financial situation, rising from 88% in the first quarter of this year.
More than three quarters (77%) of people expect to have to cut back on spending or saving, rising to 86% with an income of less than £20,000.
Some 83 per cent of households with between £20,001 and £30,000 in income said the same, as did just under three quarters (72%) of households with £70,001 to £100,000 in income and more than half (56%) of households earning more than £100,000.
Commenting on the research findings, Jenny Holt, managing director for customer savings and investments at Standard Life, said: "Consumers have had to contend with a lot so far this year, and since April alone we have seen the increase to the energy price cap, higher national insurance contributions, as well as inflation recently reaching 9.1%.
"This is of course taking its toll on people's finances, with many having to cut back on spending and saving as a result."
Three quick ways to improve your finances
Jenny Holt at Standard Life shares quick tips for potential spending cutbacks in the current cost of living crisis.
Review your expenditure for potential areas of savings
Jeremy explained: “By looking through your monthly outgoings, you may find there are ways to make savings. Do you have any subscriptions or memberships that you no longer use and could cancel or pause? Do you spend a lot of money on things that are a luxury, such as takeaways? Taking some of these small steps could make a difference.”
Shop around for better deals
“You may be able to switch household providers and find cheaper deals - such as for broadband or your mobile phone. Many providers have package deals for new customers so it’s worth using a price comparison website to see if there are savings to be had,” Jeremy suggests.
The financial expert said: “To help you keep an eye on your outgoings, it may be worth setting a budget for things like food shopping and socialising so you don’t spend more than your means.”
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