Faced with soaring costs of fuel, food, and other essentials, new research from Barnett Waddingham suggests 7% of people with a workplace pension are planning to reduce their contributions to cope with the rising cost-of-living. This translates to 1.05 million people.
Worryingly younger people appear particularly likely to consider reducing pensions spend to make ends meet. Almost one in five 18–24-year-olds (18%) said they planned to reduce their contributions, at a time when it’s vital to lay the foundations for a stable financial future.
People have adapted to the cost-of-living crisis in a variety of ways, with many already opting to cut out everyday luxuries such as subscriptions (19%). But this research shows that sadly the cost-of-living crisis is beginning to impact our financial planning too. A quarter (26%) of respondents admitted to dipping into savings to cope with price rises, and having to sacrifice long term financial ambitions. This is especially true of those aged 55+ (29%), and more true for women than men (28% vs 25%).
For those without savings, the situation is bleaker; almost one in ten people (9%) are increasing their use of credit cards, and 7% are paying more using ‘buy now, pay later’ schemes. The increase in credit card spending is true of 16% of 18–34-year-olds, raising the spectre of debt misery in years to come.
As the cost-of-living crisis continues, Barnett Waddingham’s research suggests it could push people to use funds earmarked for retirement planning to supplement increased costs too. 3% of those aged 55+ with a pension plan to draw down their pension to keep up with the rising cost of living.
Given that most people are already not saving enough into their pensions, these developments could have a profound impact on our financial resilience. It makes it even more important that employers explain the level of contribution needed to fund a comfortable retirement. Yet, employees appear hesitant to turn to their employers for support with the rising cost of living. Just 6% of employees said they would ask for a pay rise to keep up with the cost-of-living. Although the figure rises among younger workers, with 15% of those aged 18-34 willing to negotiate on pay.
Mark Futcher, Head of DC at Barnett Waddingham, comments: “The cost-of-living crisis has forced many people to take a long hard look at our finances. But while there’s clear merit in doing some financial spring cleaning, cutting back on financial planning commitments could have a dramatic impact on long-term financial wellbeing.
“At a time of significant financial hardship, it’s important that employers do their bit to help employees keep their heads above water. At a basic level this means providing stronger financial guidance for employees and encouraging them to think twice before making knee jerk decisions with their finances. Better still would be to help valued employees shoulder the financial burden by upping employer contributions to workplace schemes and even considering continuing to pay employee contributions if an individual needs to pause contributions temporarily. “