Workers might be tempted to suspend workplace pension contributions during the cost of living crisis – but that could be a costly mistake when it comes to your retirement
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Workers who suspend pension contributions during the cost of living crisis risk losing thousands of pounds later in life, an investment firm has warned.
Families are facing huge financial pressures due to rising bills, which means they may be tempted to spend less money on their pensions.
Employers are required to enroll their staff in occupational pension schemes.
The minimum contribution that must be paid each month to your occupational pension is 8% – this consists of a contribution of 5% of your net salary and 3% from your employer.
You will automatically be enrolled in an occupational pension scheme if you are between 22 and the statutory retirement age and earn at least £10,000 a year.
However, even if you are eligible and are automatically registered, you can choose to opt out.
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How to prepare for retirement
The main reason people decide not to join a company pension plan is that it reduces their take home pay.
But even if your monthly salary is lower, the money is still yours – you just save it for later.
For those who may choose to take retirement from work to give their pay a little boost during the cost of living crisis, investment firm Aegon warns it could cost you thousands of pounds.
Aegon’s analysis shows that if you skip your pension contributions for a year, you could miss out on £4,600.
If you unsubscribe for two years you could lose £9,100 and for three years you could miss £13,600.
Of course, the exact amount you pay into your pension each month depends on your salary and the amount of your contributions.
Aegon says these figures are based on a 25-year-old with an average salary of £29,000 and pension contributions of £75 a month.
The figures are also based on this amount increasing each year by 3% and the growth of investments by 4.25%.
Your occupational pension is separate from the state pension.
Kate Smith, head of pensions at Aegon, said: “Those looking to reduce their pension contributions should carefully consider the long-term effects before making decisions.
“While there may be a small immediate increase in take home pay, Aegon’s analysis shows it could cost you thousands of pounds in retirement.
“In addition, employees who suspend their pension contributions will most likely lose valuable employer contributions that help boost retirement savings.”
Energy bills took the biggest hit in household bills last month, after regulator Ofgem raised its price cap for those with typical use to £693 on April 1.
There are also rising municipal tax bills, water bills, broadband and mobile phone costs, and record high gasoline and diesel prices.
Along with rising bills, workers and employers are paying more into National Insurance after a 1.25 percentage point rise.