27 Sep 2022
Workers are debating skipping their regular pension payments to help pay for rising energy bills in 2022 - but this could mean they lose £77,000 by the time they reach retirement.
With the energy price cap increasing by £693 from 1 April, the average customer is expected to be paying out an extra £57.75 per month for their energy. Research by Penfold, a digital pensions platform, has suggested that nearly 13million pension savers save less than £100 into their pension each month, and may need to reduce their contributions in order to cope with the rising cost of living. Of these, it said more than 6million only saved between £1 and £50 into their pension each month.
As this is eclipsed by the typical rise in energy bills, Penfold has said they may decide to no longer pay anything into their pension at all. But experts have urged savers not to skip their pension contributions to pay for their bills, as the long-term losses could see their retirement fund down by up to £77,000 in the worst-case scenario.
Young workers would be the most at risk if they stopped their pension payments now, according to Penfold. A saver currently aged 30, for example, would miss out on nearly £1,750 on the value of their final pension pot at age 67 if they reduced their pension contributions by £57.75 each month for one year to meet rising energy costs. If energy bills stayed at the same level for five years and these savers continued to reduce their contributions, the potential losses could total £9,000.
According to Penfold, an individual's pension contributions should be 12 per cent of the average salary (currently £31,285) for a 'modest' retirement. This would mean monthly contributions close to £313 per month. For the 40% of adults currently putting in less than £100 a month, cutting their contributions further could be seriously damaging to their quality of life in retirement.