New figures which show growing numbers of people are cutting their workplace pension contributions to make ends meet during the cost-of-living crisis are deeply worrying.
Q director Lee Fellows, says the figures show the impact the crisis is having on families across the region – but also point to a possible pensions timebomb in the future.
Digital pensions platform Penfold says its research shows that the number of people opting out of company pension schemes soared by close to a third between March and July this year.
Lee said the figures were an indication of the financial pain the current crisis was inflicting on households.
“People are having to make a choice between having essential money available in the short term or saving for their retirement in the long term. That is putting them in a hugely difficult position.
“People are being forced to cut their cloth accordingly to survive this present crisis, but at what cost in the future?”
Lee urged anyone thinking of cutting their contributions to seek expert financial help – and said other, more cost-effective, options could then be explored to help out.
“Pension contributions are effectively free money from your employer, so you need to think very carefully before taking the decision to pass them up.
“Employers are required, in most instances, to contribute at least 3% of your salary into a suitable scheme and some of the bigger firms will actually match what you contribute, up to their limits.
“All pension contributions are tax free, so stopping contributions and having the cash back incurs additional tax liabilities which very quickly start eating into the extra cash.
“For example, on an average salary of £31,772 per annum in the UK, a worker can expect to receive around £85 per month additional income in their take home pay by ceasing contributions. This is based on their employer scheme being set up to take into account basic pay as opposed to qualifying earnings, which quite a few firms are not.
“But the value of the pension contribution is actually £211.81 per month when you factor in employer and employee savings – which compounded over the coming years will amount to a significant reduction in your retirement pot.
“There are no easy answers to the situation at the moment, but getting the right advice and support is absolutely essential if families are to make the best financial decisions both in the short and longer terms.”