UK savers in their 50s are facing a significantly lower sum in their pension pots due to the pressures of the coronavirus pandemic.
Research by Legal & General Retail Retirement found that many people aged 50-59 decreased their pension savings by £175 ($226, €191), on average, during the lockdown months.
The sum, for many who contribute to a workplace defined contribution (DC) scheme, is the equivalent to opting out entirely.
The risk is that if they do not make payments again, they face losing as much as £100,000 when reaching age 75.
Consequences
Legal & General provided a case study.
A 50-year-old earning the average UK wage of £30,566 a year, with a pension pot of £61,000 would be £98,680 worse off by the age of 75 if they never saved into their workplace pension again.
By opting out of payments, they would be left with a pension pot over a third smaller at £170,617, compared to the £269,297 they would amass if they maintained their regular monthly contributions.
This assumes that the individual continues to work full time up until their retirement age.
There will be losses to pension pots even if the scheme member stops contributions for a limited time, this ranges from around £2,000 if they don’t pay in for six months to nearly £8,500 if they stop for three years.
Securing a comfortable retirement
Chris Knight, chief executive of Legal & General Retail Retirement, said: “The pandemic has thrown millions of people’s retirement plans off course and has inevitably forced many of those struggling to make ends meet to opt-out of their workplace pension.
“For those in their fifties, stopping contributions now can have a big impact on their savings and ability to retire as planned. From our own research, we already know that that 1.5 million workers aged over 50 will delay their retirement as a direct result of the covid-19 pandemic, with workers who had been furloughed or taken a pay cut during the pandemic most likely to delay retirement.
“These are of course challenging times, but while it may be hard to look past current difficulties, it is important not to lose sight of the long-term benefits of saving into a pension to secure a comfortable retirement.
“Despite current circumstances proving challenging, we would urge those who have already saved something for retirement to maintain their contributions. Pausing them may be tempting, however people should explore every possible alternative before considering this.
“For those who have already taken the difficult choice to opt-out, our projections highlight how vital it is to prioritise enrolling back into the scheme as soon as they are able to do so, to limit the losses to their retirement fund.”
