People who choose not to participate in workplace pension plans as the cost of living crisis strikes will lose out on tens of thousands in retirement income, according to data from Penfold.
The number of savers electing to leave their workplace pension plan climbed by 29 per cent from March to July of this year.
The CPI has increased to 9.4 per cent, a 40-year high, according to the ONS, putting additional strain on households already struggling to keep up with rising utility, fuel, and food prices.
According to research from Penfold, if a 20-year-old who is now contributing £200 per month to their pension stops contributing for three years, the value of their total pension pot at retirement will reduce by more than 10 per cent, or £28,074, to £240,600.
If a 25-year-old stops making contributions for three years, their pension pot will lose value by £24,779, while a 30-year-pension old’s pot will lose value by £21,870 by the time they reach retirement age.
Penfold co-founder Pete Hykin says: “Everyone understands that the pressures facing today’s savers are considerable. Many people are feeling the pinch on their incomes and savings, but it’s vital that those people who are financially able to pay into their pension continue to do so.
“The increasing number of opt-outs is a worrying trend, especially as the impact of pausing contributions, even for just a short period, can have a hugely detrimental impact on an individual’s finances in retirement, especially for those starting out in their career.
“Auto-enrolment providers and employers need to work together to educate and empower employees to make the right financial decisions during these turbulent economic times. If employees are unaware of the consequences of pausing contributions for a few years, it can feel like an easy decision to make. But this is not operating in a context where they have all the information to make an informed decision.
“At Penfold, we want to support savers through this by providing greater flexibility on how much and how often they save into their pension, especially when finances are tight.
“Offering people tools which can create savings goals and help individuals stick to these goals by breaking down how much they need to save every month will be crucial. It’s also key that providers offer easy access to pension experts who can help people make the right choices when it comes to managing their pension during a tougher economic climate.”
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