Providers have started to take action as more individuals move to reduce pension contributions as a result of the cost of living crisis.

Earlier in August, Scottish Widows’ senior corporate pension specialist, Robert Cochran, took to Twitter to reveal that the company was filming some content for people who are looking to reduce contributions.

Speaking to Pensions Expert’s sister title FTAdviser, Cochran said: “We know that many people are worried about their financial wellbeing, while others may be looking to make adjustments to their monthly outgoings to make ends meet. 

“But before making any decisions, we urge people to consider the long-term implications of reducing pension contributions to help ease the current financial pressures. Paying in less now can have a big impact on the overall income when they come to retire.”

Affording food and heating in the present day will always take priority over saving for the future

Andrew Tully, Canada Life

Long-term negative impact

Cochran explained that it is not just about individual contributions, since in workplace pension schemes employers pay in too.  

“Those who withdraw from workplace pensions will miss out on these extra payments,” he said.

“Some employees will be paying above minimum contributions to their schemes and may be able to reduce payments while keeping contributions above the auto-enrolment minimum — this will maintain a level of employer contribution.  

“But it is likely to have a negative impact on the value of their pension pot over the long term.”

Cochran added: “With that in mind, we strongly recommend people seek professional financial advice if they’re able to before making changes to their pension.”

Likewise, Canada Life said it has been talking about this through its own channels, mainly using Linkedin.

Earlier in August, the provider released figures which showed through consumer research that one in 20 people have stopped pension contributions because of the cost of living crunch. This is happening across both the private and public sector.

The research revealed that a further 6 per cent of savers are actively thinking about pausing their contributions, while 9 per cent might consider doing so in the future.

This comes as inflation jumped to 10.1 per cent in July, after the UK saw prices rise by the steepest gradient in 40 years last month. 

Opting out of a company pension for just one year could reduce the value of an individual’s final pot by 4 per cent, according to Canada Life.

This is based on someone earning £50,000 a year, paying a contribution of 8 per cent and pausing contributions for a year.

Savers feel the inflation squeeze

Canada Life technical director Andrew Tully said: “The rising cost of living crisis is putting an incredible amount of strain on people’s finances. With economists expecting inflation to peak into double digits later this year, the squeeze on the nation’s finances will only get worse. 

“It’s understandable that people who are really feeling the pinch are considering opting out of their pension.

“Affording food and heating in the present day will always take priority over saving for the future. However, it’s important that anyone who does decide to opt out of their pension remembers that they can choose to rejoin the scheme as their financial situation improves.”

Tully added: “It’s worth remembering that if you are in a company pension scheme you can often only choose to stop or start contributions once a year, and you will miss out on valuable top-ups from your employer and the government.”

Canada Life said this is certainly a topic it will revisit and will consider how to promote positive messages around pension saving, “but striking the balance with the needs of many people today who need to make ends meet”.

Meanwhile, Emma Byron, managing director at Legal & General Retirement Solutions, noted that “it’s too early to tell, but it’s something we are keeping a close eye on”.

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She explained that L&G has not yet found evidence from its workplace pension book of more people delaying retirement, reducing or stopping their contributions.

“Although we have seen that people are drawing down more from their personal pension, it is too soon for us to attribute this to the cost of living,” she said. 

“It is inevitable though that with the cost of living crisis biting, people will be considering whether they should access their savings earlier and/or drawing down at higher rates.”

This article originally appeared on FTAdviser.com

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