retirement pension

Why You Should Avoid Cutting Pension Contributions

havenifa

havenifa


Posted on: 15th September 2023

If you have been steadily working for decades, retirement is one thing you undoubtedly have excitement towards reaching. Working through many changes in the world and navigating so many obstacles, you will want to enjoy your later years by taking up travel, setting up a small side business or spending more time with those you love. Have you thought about your retirement pension?

Crisis-Fuelled Cutting

No obstacle has played a hand against realising that goal than the cost of living crisis, a period we are still experiencing and has seen waves of UK adults having to cut costs wherever possible to keep their lives comfortable.

One of the areas where people have shaved down their expenditure has been their retirement pension, with 51% of employers receiving requests from their employees to reduce their pension contributions. Even scarier, 47% of employees request that their contributions stop altogether!

In 2023, over 50% of UK households earning more than £100k are cutting back on spending habits, showing that even higher earners are mitigating the soaring cost of living. With pension contributions being viewed as expendable to so many during this rough financial period, we want to look at why reducing or pausing these contributions can result in a significantly lower pension pot and discomfort in your expected retirement planning Cheshire.

Reduction of Thousands

Reducing your pension contributions now whilst you are navigating the current cost of living crisis could stand to cost you so much more in the long run. By the time you do retire, you will stand to see a significant shortfall due to your paused contributions.

For example, if a 35-year-old opted out of contributing to their pension pot for one entire year, the amount that they stand to lose when they do retire could be around the area of £12,000. If that individual opted out for 3 years, that loss could be £37,000.

That is just from reducing payments for a short period. Pausing all pension payments completely can result in tens of thousands of pounds lost by the time you finally retire. You also stand to lose out on government help when you reduce your pension contributions. When you pay into workplace or personal pensions, the government boosts your savings by way of tax relief. You also can lose employer contributions when you reduce or stop your workplace pension contributions.

Longer Working

What is the worst thing that can happen to your retirement planning? You will have to work much longer to make up the difference.

Not only will cutting your pension payments reduce what you can financially afford when you do retire, but you will also have the indignity of having to work much longer to get your pension pot to the desired level.

Before you make a decision that will greatly affect your retirement planning Cheshire, talk with independent financial advisers Cheshire. Our team can help to work out exactly what you may need to fund your ideal retirement and create a plan tailored to your current and future financial circumstances.

At Haven IFA, our team provides expert and educated pension advice Manchester. If your pension contributions concern you, call our independent financial advisers Manchester today so we can help.