A fifth of UK adults have either paused or are considering pausing their workplace pension contributions, according to new research from Moneybox. The analysis warns that while such a move could boost short-term income, it comes with a significant long-term cost.
Moneybox’s Psychology of Retirement research found that pausing contributions for 12 months could increase the average earner's take-home pay by around £1,000. However, it would also leave them more than £12,000 worse off in retirement, once lost contributions and potential compound growth are considered.
Short-term gain, long-term pain
That £12,000 shortfall is equivalent to almost a year's living costs for a single person on a minimum retirement lifestyle, as defined by Pensions UK’s Retirement Living Standards. The research also revealed that more than a quarter (27 per cent) of adults would consider cutting their pension contributions to increase their disposable income.
Only 35 per cent of respondents recognised the importance of time and compound growth in building long-term pension savings, the study found. Moneybox said the findings demonstrated the potential influence of 'present bias' – savers’ tendency to prioritise greater rewards today over potentially greater benefits in the future.
Expert advice for stretched budgets
Brian Byrnes, head of personal finance at Moneybox, commented: "When household budgets are stretched, an extra £80 or £100 in your monthly pay packet can understandably feel much more valuable than money you won't access for decades."
"But our analysis shows just how unequal that trade-off can be," he added. Byrnes recommended that if savers do need to pause or reduce pension contributions, they should treat it as a "temporary measure" and review what they are contributing when circumstances improve.
Steps to mitigate the impact
He explained that even small increases in contributions can make a difference over the long-term, particularly if their employer offers contribution matching. Byrnes also advised savers to review the performance and fees of any old workplace pensions and consider consolidating old pension pots, where appropriate, to make them easier to manage.
