UK retirement plans deferred as employees seek cash today

Survey shows 20 per cent of workers have reduced or cancelled pension contributions to cover bills

Many British workers have stopped or reduced pension contributions to meet household bills. PA
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One in five UK workers has either opted out of an employee pension plan or has asked to make lower contributions in an effort to free up cash to pay bills today, a new survey shows.

A poll of 2,000 employees by the Pensions Management Institute (PMI) found that 7 per cent had opted out in the past 12 months and 13 per cent had asked to make lower contributions. That would mean that they would miss out on any contributions that are matched by their employer.

It also means that, in doing so, employees will typically have to delay their retirement for three years, according to the PMI.

Cost-of-living crisis

The reason for this is the UK's cost-of-living crisis ― workers feel they need more cash in their pay cheques today and in the near future to cover the cost of soaring energy and food bills.

With inflation in the UK close to 40-year highs and the prospect of many mortgage repayments increasing in the new year, it has become a case of sacrificing future comfort for current need.

"The nation as a whole has lost confidence in its prospects for a comfortable retirement, and that is something that should alarm us all,” said Sara Cook, the president of PMI.

“A significant proportion of the general public is saving at rates lower than they were 12 months ago. They are aware of the impact this will have, but feel that they have no alternative,” she added.

However, while opting out of an employee pension scheme may mean that a worker gets slightly more cash in their wage packet today, it also means they lose out on the contributions employers make and the associated tax benefits.

While one in five workers has already either opted out or asked to make lower pension contributions, the PMI says that a further 20 per cent are considering doing so.

Energy bills are one reason people are reconsidering their pension contributions. PA

“It is tragic that all the good achieved by automatic enrolment over the last decade might be undone by desperate people being forced to make short-term decisions at the expense of their longer-term security,” Ms Cook said.

Ten years ago, new rules required companies to automatically enrol employees into a suitable pension scheme, which brought an extra 11 million people into the pensions system.

Under the scheme, workers get 5 per cent of their annual salary over £6,240 put into a pension, and the employer contributes a further 3 per cent.

But by opting out, a worker on £20,000 a year would pocket an extra £550 in take-home pay, or £46 a month, after tax and national insurance.

Recently, food price inflation in the UK hit 16 per cent and the market research firm, Kantor, said shoppers are spending an extra £60 a month on groceries compared with a year ago.

Updated: December 29, 2022, 10:49 AM
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