People opting out of workplace pension schemes as cost-of-living crisis bites set to miss out on tens of thousands in retirement income

by | Aug 16, 2022

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  • The number of savers opting out of their company pension has increased by 29% from March to July this year, according to Penfold. 
  • Inflation reached a 40 year high in June as the CPI hit 9.4%.  
  • Pausing pension contributions now will cost new entrants to the workforce up to £28,000. 

Data from Penfold, the digital pensions platform, today reveals that the number of savers choosing to opt out of their company pension scheme has increased by 29% from March to July this year.  

The rapid rise in savers choosing to opt out comes at a time when finances are being increasingly stretched.

The ONS reported in July that the CPI has reached a 40 year high of 9.4%, adding pressure to households already bearing the brunt of rising bills, fuel and grocery costs.

However, the impact this could have on their longer-term financial prospects is significant. Analysis from Penfold shows that if a 20-year-old contributing £200 per month to their pension pauses contributions for three years, the value of their final pension pot at retirement will fall by £28,074, from £268,675 to £240,600, more than a 10% decrease.

For a 25-year-old contributing the same amount, their pension pot will fall in value by £24,779 if they pause contributions for three years, while a 30-year-old see their pot will fall in value by £21,870 by the time they reach retirement age.

Pete Hykin, Co-Founder at Penfold, comments: “Everyone understands that the pressures facing today’s savers are considerable. Many people are feeling the pinch on their incomes and savings, but it’s vital that those people who are financially able to pay into their pension continue to do so.  

“The increasing number of opt-outs is a worrying trend, especially as the impact of pausing contributions, even for just a short period, can have a hugely detrimental impact on an individual’s finances in retirement, especially for those starting out in their career.  

“Auto-enrolment providers and employers need to work together to educate and empower employees to make the right financial decisions during these turbulent economic times. If employees are unaware of the consequences of pausing contributions for a few years, it can feel like an easy decision to make. But this is not operating in a context where they have all the information to make an informed decision. 

“At Penfold, we want to support savers through this by providing greater flexibility on how much and how often they save into their pension, especially when finances are tight.  

“Offering people tools which can create savings goals and help individuals stick to these goals by breaking down how much they need to save every month will be crucial. It’s also key that providers offer easy access to pension experts who can help people make the right choices when it comes to managing their pension during a tougher economic climate.” 

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