With Britain in the midst of a cost of living crisis, research from the FSCS has found that 23% of people with a pension have either decreased their contributions or stopped them altogether. Joshua Wilding explores why this is happening, and offers his advice.

Is the cost of living putting you off pension saving? Matthew Douglas

Whether it’s energy bills rising, the cost of the weekly food shop increasing, or mortgage payments skyrocketing, the cost of living is impacting everyone. 

For people struggling to pay their bills each month, decreasing or stopping pension payments is seemingly an attractive option to provide temporary financial relief, with 23% of people having done just that.

Why people are cutting back pension contributions

With pockets stretched, it’s easy to see why people are put off from pension saving and saving in general. 

With some people at their limit and struggling to make ends meet, they need to prioritise paying the bills over saving for the future. When you’re thinking about getting through the next week, you’re not going to be overly concerned about the next 25 years. 

For people in this situation difficult decisions are having to be made, with pension contributions or insurance premiums an easy target to save a bit of money to put towards household bills. 

If you are in this situation and struggling with paying your bills, the best thing to do is contact the service provider of the bill and have a conversation with them. Under rules from Ofgem, they are obliged to help you out with things like payment breaks, affordable payment plans or more time to make payments. 

There are also a number of organisations that provide debt advice and support. These include Citizens Advice, the National Debt Line and National Energy Action. There’s some amazing support out there that’s not shouted about, so you should never struggle in silence. 

Cut luxuries before pensions

Whilst there are people struggling to make ends meet, the average UK consumer is doing ok. For these people it should be discretionary spending – non-essential, luxury purchases – that should get cut back before you think about cutting your pension contributions. 

It’s really important to continue contributing to your pension, even if your monthly finances have taken a bit of a hit, as that’s what’s going to ensure you a comfortable retirement. 

Anyone over the age of 22 qualifies for auto-enrolment to a pension scheme, so make sure your employer is paying in on your behalf. If you can, max out your contributions, especially if you’re living at home with your parents, as your life is likely the cheapest it will ever be.

Check how much risk you’re taking, as investing can help your pension work harder for you, but of course your pension pot can shrink as well as grow. If you need advice, get in touch with a financial adviser to understand what pensions you’ve got or if you want to set up a private pension. That’s what we’re here for.

Pension saving vs savings account

Pension saving is a very tax-friendly way to save for retirement. That’s because you automatically get 20% tax back from the government paid into your pension, and for higher rate taxpayers it’s even more. 

So maxing out your pension contribution is generally a good idea. It is however prudent to have an emergency fund of six months’ salary saved in an accessible account in case things go wrong. 

Once you have that, upping your pension contributions helps you short term by ensuring you effectively pay less tax, and long term it helps you fund a nice comfortable retirement, which is ultimately what most people want. 

At Matthew Douglas, our team of retirement planning experts are here to help you ensure your pension is right for you. Get in touch with us to discuss your options.