Research from Royal London shows that two in five (40%) millennials aged 18-34 have either stopped (12%) or reduced (28%) their pension contributions as a result of Covid-19.
Affordability was the most common reason for altering pension contributions affecting four in ten of those who reduced or stopped their contribution. Affordability was a bigger issue for 18-34-year olds with more than half (51%) saying they altered pension contributions because of it.
However, the research shows this is unlikely to be a long-term issue. Almost eight in ten people (79%) said they plan to resume or increase their contributions at some point in the future. This includes more than one in ten (11%) who have already resumed or increased contributions during lockdown and 37% saying they plan to do so within three months.
Royal London also found that nearly one in five (18%) people have stopped or reduced contributions on other savings/investment products as a result of Covid-19, with those under 35 more likely to have stopped or reduced (29%).
Ben Barratt, head of investments at Arlo International says its crucial for young workers to start saving for retirement as early as possible: “The earlier an individual starts, the more they’ll reap rewards later down the line. As such, the changing value of money over time is an important concept to be aware of when making financial decisions. For example, £1,000 now is worth more than £1,000 in the future due to its potential earning capacity, as the £1,000 received today will have more of a chance to grow.
“Government policy is always changing and, with the Covid-19 pandemic causing the level of debt to exponentially increase, there is a strong possibility it will change again to pay the debt back, with spending cuts and tax hikes both likely to be pillars of the recovery effort. As pension tax relief costs the Treasury £40bn a year, it’s a big target for cutting back and increasing tax receipts, so individuals should make the most of it while they can.”
What happens if you stop contributing to your pension pot?
Arlo’s Barratt says if an individual stops saving early on, then they may be forced to work longer in life or live a less comfortable retirement because the wealth accumulated isn’t enough to provide their desired lifestyle.
“As a result, the individual could be forced into taking on more risk than they’re comfortable with in the future to make up investment returns that had been missed out on earlier in life. Worse still, the individual could end up running out of funds altogether before death, a position that no one wants to find themselves in,” adds Barratt.