The cost of living crisis is seeing more people squeezing their pension saving, new evidence reveals.
Recently we highlighted how Interactive Investor’s annual retirement survey was warning that more than half of us had decided to curtail or scrap saving.
Now a Scottish Widows’ Retirement Report has confirmed the trend.
This latest snapshot not only highlights pensions but also suggests “rainy day” funds are being raided.
Interactive Investor chief executive Richard Wilson said: “When it comes to retirement dreams, many have gone from being locked in to priced out. The cost-of-living crisis means retirement plans are being put on hold and savings cut back or dropped altogether.”
Scottish Widows head of policy Pete Glancy added: “It’s sadly understandable that households are being forced to make some tough choices, but it’s important they do so whilst taking a longer-term look at their finances. Having a decent employer or personal pension in place is one of the best ways to plan for your future financial wellbeing, so people should think twice before making decisions that could result in long-term pain for a short-term gain.”
Close to 11 per cent of adults claim to have trimmed their pension contributions or stopped altogether.
The life insurance and pensions group accepted: “This is a relatively low proportion and shows that many are reluctant to touch their retirement savings – which is encouraging. Yet it is concerning some have been forced to do so. On average, they reduced their pension savings by around £37 per month.”
This, it noted, could have significant implications for a person’s eventual retirement income, especially if they don’t get around to building back their contributions after the crisis has passed.
Scottish Widows went on: “Rapid inflation does not just threaten people’s ability to save, it can also severely reduce the value of the savings they already have if they are not invested appropriately. Those who hold long-term savings in cash-like or low-risk assets are particularly exposed. It is therefore worrying that 18 per cent said their pension savings are invested in cash or cash-like
assets, or low-risk assets such as UK Government bonds, or that they are planning to invest their pension in such assets.”
The grim situation is further exacerbated by the effect on non-pension saving.
“Unsurprisingly, in response to the rise in costs, many have said they will cut back on leisure and holiday spending. However, some are making decisions that are concerning: for eight per cent the main thing is non-retirement savings (e.g. rainy day funds).
“Looking beyond households’ main coping strategy, we can see that many are at least partly relying on taking on debt or tapping into their savings. The Office for National Statistics has found that 24 per cent are dipping into their savings, 13 per cent are relying on credit more often than usual, and seven per cent are borrowing money from friends or family.
“Preliminary data on credit card lending from the Bank of England, and anecdotal information on the use of buy-now-pay-later schemes to cover everyday spending, including energy, suggest a
deepening of the problem.”
Scottish Widows maintains that, as a guide, an individual should look to save a minimum of 12 per cent of their salary to secure a consistent quality of life, but aiming for at least 15 per cent is more
likely to provide a comfortable retirement.
It also points out that those who take anything out of their pension trigger the Money Purchase Pension Allowance which reduces the amount they can contribute tax-free each year from £40,000 to just £4,000.