• Warning given of the damage to people’s final pension pay-outs
• “Pausers” will also miss out on valuable top ups from employers and the government

With many people’s earnings lagging behind spiralling inflation, new research from Canada Life shows that the cost-of-living crunch in the UK has led to 5% of adults stopping contributions into their company pension, while a further 6% say they are “actively thinking” about pausing contributions and a further 9% might consider doing so in the future.

Opting out of a company pension for just one year according to Canada Life, could typically reduce the value of a final pot by 4% (for someone earning £50,000 a year, paying a contribution of 8%)

Depending on the age of the saver, that could make a significant impact on the pension pot they will ultimately accrue. If, for example they paused at age 40, Canada Life’s modelling based on someone earning £50,000 and saving 8% of salary shows they would have built a pension worth £386,999 at age 67 but missing one year’s contributions would reduce that to £371,318 – a difference of £15,681.

Andrew Tully, Technical Director at Canada Life commented: “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 re-join the scheme as their financial situation improves.

 “It’s worth remembering 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.”

If you think your retirement income might be affected by these changes, it’s easy to adjust your calculations by changing the inflation figure in your RetireEasy LifePlan that you think your pensions will increase by each year.

That way you can be sure to have a much more accurate picture of the income you can expect to enjoy… and make any necessary changes to your plans in good time.

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