Pension contributions chopped as recession hits budgets

Monday, 17 November 2008 02:05

Eighteen per cent of UK workers have cut back on their pension savings because of the credit crunch.

Voluntary pension contributions to private and company schemes have fallen by 53 per cent in the last 18 months, from an average £279.38 a month in March 2007 to £129.35 a month today, according to a poll by Prudential.

A third of those cutting back said they did not know if they would be able to increase their savings.

Women are particularly having to cut pension contributions to make ends meet - now savings total £899.40 a year, compared to an average for both sexes of £1,552.20 - although women traditionally save less than men for retirement.

Martyn Bogira at Prudential, said: "It is staggering to see how much UK pension contributions are being scaled back as people look to reduce their outgoings.

"But while a pension fund may seem a relatively pain free way to increase disposable income today, the impact of this in retirement will be significant."

He added: "We would urge people to think carefully before cutting pension contributions as it is vital that they build a strong savings pot to ensure they are in the best position possible to enable them to enjoy a comfortable retirement."

Data from Axa meanwhile suggests 1.5 million people are planning to stop pension contributions as recession bites.

However, the insurer warns a two-year break would cost a 35-year-old man £28,700 from his retirement fund.

A two-year break could cut a 25-year-old man's occupational pension pot by £33,800 when he retires, and a 45-year-old's pot would be hit for £16,900.

A 55-year-old would suffer a £8,500 drop in his occupational pension fund after a two-year break in contributions.

Steve Folkard at AXA said: "Taking a pension break should be a last resort because of the long term repercussions.

"If you put £300 a month less into your pension for two years you will have a pension pot that is tens of thousands of pounds short when you retire."

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