As the cost of living continues to soar, with inflation reaching a 40-year high, the impact on household finances is taking its toll. But it is essential to try to maintain a savings habit even in the current climate. The impact of any breaks in pension contributions could mean savers miss out on thousands of pounds in the future which will mean less income during retirement.
Research has highlighted that reducing or stopping pension contributions, even for a relatively short period of time, can have a significant impact on the final pot, with savers potentially being thousands of pounds less well-off in retirement as a result.
For example, someone who began working with a salary of £25,000 per year and paid the standard monthly auto-enrolment contributions (3% employer, 5% employee) from age of 22, would have a total retirement fund of £456,893 at the age of 68.
However, stopping pension contributions at the age of 35 for just one year would result in a total pot of £444,129 – almost £13,000 less than if they had not stopped paying in. Stopping contributions for a longer period would have an even bigger impact.
While currently relatively low, the risk of sacrificing savings to cover everyday expenses continues as long as these challenging circumstances go on. Almost all (93%) say that increasing costs and high inflation are going to impact, or are already impacting their financial situation.
If possible, the first port of call should be to reduce spending, for example, cutting back on unnecessary purchases and shopping around for better value deals. Doing this, rather than making decisions that will affect future finances such as reducing or stopping pension contributions, even if for a short period only, will be beneficial in the long term.
We can help you achieve the financial future you want for yourself and your family. If you would like to review your current plans, to meet your financial goals now and in later life, please contact our partner Pareto Financial Planning on 0161 819 1311.
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