The cost-of-living crisis is affecting people’s retirement plans, with millions of workers across the country choosing to reduce their pension contributions to help pay for rising food and energy costs.
New research from the Pensions Management Institute (PMI) has found that in the past year people have ditched payments into their retirement funds to hold on to £550 or more as high interest rates continue.
Forgoing such savings could delay employees’ plans to accumulate work by three years, the research body found, with 28 percent of those surveyed believing they will never be able to retire.
It comes as millions of Britons face a ‘shocking’ rise in energy bills from January 1, as the economic crisis continues to deepen.
Research from the Pension Management Institute (PMI) found that in the past year people have abandoned payments into their retirement funds to keep £550 or more as high interest rates continue to hit.
The research body found that avoiding putting money into pension funds could lead some to postpone their retirement plans by three years.
According to PMI, 20 percent of staff opted out of their workplace pension plans or requested that their contributions be reduced in the past year.
Another 20 percent are considering taking similar steps to create some extra cash to use now.
By reducing their pension contributions each month, those on wages below £20,000 a year can increase their household income by around £550 a year, The times reports.
Therefore, those with higher incomes will be able to further increase their net income each month.
However, avoiding pension payments means that employees would lose their employer’s tax relief, resulting in less savings for their later years.
PMI surveyed 2,000 employees in November and found that 7 percent had made the decision not to participate in the past 12 months.
The surge in people seeking to reduce their pension contributions comes amid the ongoing cost-of-living crisis. Millions of Britons are facing a ‘surprise’ increase in energy bills from January 1, with some being forced to pay an extra £100 a year.
Another 13 percent asked to reduce their contributions, meaning their employer’s matching contributions would be lost, and another 20 percent considered stopping funding their pension funds.
The number of savers who felt the impact of the current cost-of-living crisis was 40 percent, and three-quarters of employees had significant concerns that the current economic crisis would have a detrimental effect on their retirement plans.
The survey found that 70 percent were likely to postpone their retirement plans.
Earlier this month, official figures showed that older people were being forced back into the job market.
ONS’s head of economic statistics, Sam Beckett, said: “This is in line with other data suggesting that more people in their 50s are thinking about going back to work, at a time when the cost of living is rising rapidly.”
“With more people re-entering the job market, there were more employees and also more people actively looking for a job.”
The PMI has predicted that the number of people avoiding retirement or putting off plans will continue to rise rapidly over the next year, particularly with higher energy bills forecast.
It comes as millions of Britons face a ‘shocking’ rise in energy bills from January 1, with some being forced to pay an extra £100 a year.
While the government insisted that the average annual bill will remain around £2,500, the maximum fees that providers can charge per unit will change.
The changes will affect all 12 of the UK’s energy regions, meaning they will now be able to change their prices to this new higher level, with Merseyside and North Wales expected to be hit the hardest.
Some households could see their energy charges rise by up to 8.9 per cent although, generally speaking, most bills will only increase by a few pounds a year.
The number of savers who felt the impact of the current cost-of-living crisis was 40 percent, and three-quarters of employees had significant concerns that the current economic crisis would have a detrimental effect on their retirement plans.
Sara Cook, President of PMI, said: ‘The pressures of meeting short-term cash needs have forced many people to make decisions that could have serious implications for their long-term financial security.
‘Our research shows that a significant proportion of the general public is saving at rates that are lower than twelve months ago.
‘They are aware of the impact this will have, but feel they have no choice. By reducing or stopping contributions altogether, savers will be subject to a double whammy, since they will not enjoy the benefits of tax relief or employer contributions.
Ms Cook said the research provides an early warning that the public is finding it difficult to take a long-term view of retirement at a time when short-term financial pressures, including higher fuel costs, rates mortgage interest and food costs, have become much higher
By reducing their pension contributions each month, those on wages below £20,000 a year can increase their earnings by around £550 a year.
Employees trying to get cash to pay their bills instead of going into their pension fund could also have a negative impact on the automatic enrollment campaign, which encourages people to start saving or their old age when they start working.
The automatic enrollment rules, which were introduced in 2012, mean employers have to put new employees into a pension plan, and employees have to explicitly opt out to avoid part of their salary being moved into the fund. .
So far the scheme has been successful, with 11 million starting to save for retirement on starting a new role, with just 10 per cent opting out.
He added: ‘It is tragic that all the good achieved by automatic enrollment over the past decade can be undone by desperate people forced to make short-term decisions at the expense of their long-term security.
‘Concerns about the retirement consequences of the current crisis were shared equally across all age groups, all income levels and all regions.
“The nation as a whole has lost confidence in its prospects for a comfortable retirement, and that is something that should alarm us all.”
Employees trying to get cash to pay their bills instead of going into their pension fund could also have a negative impact on the automatic enrollment drive, which incentivizes people to start saving or to their old age when they start working.
Since 2019, around 630,000 have left the workforce and employment numbers have yet to return to pre-pandemic levels, according to government statistics earlier this month.
It is widely believed that those who retired made these plans before the pandemic and the current cost of living crisis.
However, new figures from the Office for National Statistics have shown that tens of thousands of people between the ages of 50 and 64 have returned to the workforce after having ‘not retired’.
The ONS monitors the number of ‘economically inactive’ people in the country, who are classified as those who do not work or are not looking for work. Between August and October, that figure fell 0.2 percent.
During that three-month period, 84,000 fewer people described themselves as retired.