New research has shown that a third of workers have stopped paying into their pensions as they can no longer afford them.
The survey by the Prudential has found that ever tightening household budgets and redundancy were the main reasons for people stopping contributions to their pensions; worryingly almost 50% of those who have stopped making contributions say they have no plans to start payments again.
The reduction in the amount being saved into pensions will have a knock on effect on people’s income when they come to retire and could increase the levels of long term financial hardship.
Experts generally recommend that pension contributions are only stopped as a last resort; an alternative could be to temporarily reduce the amount being paid in each month and then increase the contributions when finances allow, however even that can have a significant impact on the value of a pension fund at retirement.
Vince Smith-Hughes, head of business development at Prudential, who carried out the research, said: “Tightening your belt when times are hard is sometimes necessary, and putting pension contributions on hold might seem an easy way to save money. However, neglecting pensions today means throwing money away tomorrow, as savers will miss out on perks, such as tax relief and employer contributions.”
He added that a 45 year old who stops making pension contributions of £200 per month for just one year would see a reduction of £7,000 in the final value of their pension fund.
Further research, this time by the Annuity provider LV (Liverpool Victoria) has emphasised the importance of making provision for retirement and the consequences of not doing so.
LV has found that the number of people planning to use equity in their home to help make ends meet in retirement has risen by 500,000 in the past year alone.
A staggering two million people in the UK now say that they will need to use their home to help supplement their retirement income.
Given the current state of the UK housing market many experts believe that using equity in your home to provide an income should not be relied upon, and even if equity is available using it should only be considered a last resort.