The impact of post-Christmas debt and higher energy bills in 2023 could lead to a significant reduction in pension saving, according to new research from the Pensions Management Institute (PMI).
The research found that most retirement savers have so far continued to pay contributions to registered pension schemes, despite pressures on household incomes from the cost of living crisis.
However, PMI said there is strong evidence that this may change.
According to its research, based on a Censuswide survey of 2,000 working people, of those saving into a pension scheme over the past 12 months, 13 per cent have reduced their contributions.
A further 20 per cent are considering doing so over the coming months and 7 per cent of those polled have already ceased their contributions.
PMI president Sara Cook, said: “The pressures of meeting short-term needs for cash have forced many people to make decisions which could have serious implications for their longer-term financial security.
“Our research shows that a significant proportion of the general public is saving at rates that are lower than they were 12 months ago.
“They are aware of the impact this will have but feel that they have no alternative. By reducing or stopping contributions altogether, savers will be subject to a ‘double whammy’ in that they will not enjoy the benefits of tax relief or employer contributions.”
Cook added: “Our research serves as an early warning that the public is finding it harder to take a longer-term view of retirement saving when short-term pressures have become so great.”
The research was commissioned by the PMI and completed in November 2022.
It revealed that the number of savers who are feeling the impact of the cost of living crisis is nearly half (40 per cent).
The PMI expects this number to continue to rise - possibly rapidly - particularly when the cost of Christmas and higher energy bills are felt.
Energy bills are set to rise in April 2023 as the energy price guarantee for the average household will increase from £2,500 to £3,000 – a 20 per cent uplift from its current level.
The survey revealed that of those old enough to do so, 17 per cent have withdrawn money from their pension savings to meet short-term needs.
Over 75 per cent of workers were concerned that the cost of living crisis would have a detrimental impact on their plans for retirement.
Some 70 per cent believed that they would have to defer retirement.
Workers said they expect they will need to work for an extra three years due to the crisis, with 28 per cent believing that they would never be able to retire at all.
Cook said: “It is tragic that all the good achieved by automatic enrolment over the last decade might be undone by desperate people being forced to make short-term decisions at the expense of their longer-term security.
“Concern about the consequences for retirement of the current crisis was shared equally across all age groups, all income levels and all regions.”
She added: “The nation as a whole has lost confidence in its prospects for a comfortable retirement, and that is something that should alarm us all.”
sonia.rach@ft.com
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