Published On: Thu, Dec 29th, 2022

Workers cut back on pension saving to pay rising bills | Personal Finance | Finance


With real wages falling and bills rising sharply, people across the country are looking for ways to reduce spending and supplement their incomes.

According to the Pensions Management Institute (PMI), in the past year 20 percent of employees have opted out of workplace pension schemes or asked to have their deductions reduced. A further 20 percent are considering doing so.

By opting out, and allowing for extra tax and national insurance, an employee on £20,000 would get an extra £550 in take-home pay, or £46 a month. Employees on higher pay can boost their take-home pay by more.

But they miss out on parallel pension contributions from their employers, plus tax relief, so have less stashed for retirement.

The PMI’s poll of 2,000 employees found that seven per cent had opted out in the past 12 months and 13 percent had asked to make lower contributions.

Automatically enrolled staff have a minimum of five percent of their annual pay above £6,240 deducted, with employers adding in at least another three percent.

Research this month by Aviva found that 23 percent of workers in a pension fund were considering stopping, pausing or reducing their contributions.

Tim Middleton, director of policy and external affairs at the PMI, told the Express they are “concerned”.

He said: “We would urge those who are considering a suspension or cessation of pension contributions to consider the impact on their retirement plans.”

Employers are required to automatically place new recruits into a pension scheme. To avoid it, employees must explicitly opt out and until recently, only 10 percent were doing so.

But the rising cost of living is putting growing pressure on struggling British households.

Ros Altmann, former pensions minister, said: “It’s so important that people think very carefully…you will lose out on the free money from your employer and from the taxman, which would be added to your pension fund. So you lose far more than just the payments into your pension.

“I must say, though, that the pensions industry has not risen to the challenge of attracting people to keep paying. Your pension company has had a few years to help you see how great pensions are and how valuable they can be for your future. I just hope the message will get through to people.

“The industry is missing the opportunity to make people feel proud of their pensions. The sooner they give those messages, rather than relying on the media to do it for them, the better.”

●Many families’ living standards in 2023 will be as bad as this year, amid falling pay and soaring energy, tax and mortgage bills, a think-tank has warned.

Households face a cost-of-living “groundhog year” with disposable incomes plummeting even further than in 2022, according to the Resolution Foundation.



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