Millions of over-50s could be tens of thousands of pounds worse off in retirement because they reduced their pension contributions during the pandemic.
As many as one in eight workers aged over 50 cut their pension payments due to the financial pressures of Covid-19.
If they reinstate payments now, the impact will still be contained, but a 50-year-old who never opts back in to making pension contributions could be £50,000 worse off by their state pension age of 67, new research from Legal & General reveals.
Worry: As many as one in eight workers aged over 50 cut their pension payments due to the financial pressures of Covid-19
The retirement provider looked at the impact of taking a break of between six months and three years from making pension contributions.
It found that if a 50-year-old earning the average UK wage stopped payments for one year, they would have around £3,000 less in retirement savings by the time they hit state retirement age.
If they opted back in to making contributions after three years, they would have £10,000 less.
But if they didn’t opt in again at all, their pension pot would be nearly a third smaller than it would have been if they had continued payments, leaving them £50,000 worse off.
Legal & General’s Andrew Kail says it can be tempting to pause pension contributions – and then to leave them that way. But he recommends that savers should consider every possible alternative before doing this.
He says: ‘We know many pension pots in the UK will not provide the income people hope for in retirement. For those in their 50s, taking a hiatus will have a big impact on their ability to retire as planned.’
He adds: ‘Although current circumstances are proving challenging, we would urge those who have already saved something for retirement to maintain contributions.
For anyone who has stopped payments, we recommend they start saving again and take advantage of the tax breaks available on contributions.’
While some households have seen their incomes come under pressure, others have saved more.
Millions have used surplus cash to pay off outstanding debts while others have left additional savings languishing in a bank account. Such money could be used to make a one-off payment into a pension where it would benefit from tax relief.