Connect with us

Hi, what are you looking for?

Business

Millions halt pensions to pay their bills amid rising cost of fuel and food

Millions of people have abandoned saving into pensions in the past year to bag an extra £550 or more in annual take-home pay to meet rising fuel and food bills.

The abrupt change in behaviour has left employees typically expecting to have to delay their retirement plans by three years, the Pensions Management Institute has found.

According to its research, 20 per cent of employees have opted out of workplace pension schemes or have asked to have their pension deductions reduced in the past year. Another 20 per cent are considering doing so.

Lower-paid employees on £20,000 a year can boost their take-home pay by about £550 by opting out, but they miss out on parallel contributions from their employer plus tax relief, so have less to put away for retirement. Employees on higher pay can boost their take-home pay by more.

The chase for cash to pay bills could jeopardise the automatic enrolment campaign, an undertaking with cross-party support designed to nudge people into saving for their old age.

Sara Cook, president of the Pensions Management Institute, said: “It is tragic that all the good achieved by automatic enrolment over the last decade might be undone by desperate people being forced to make short-term decisions at the expense of their longer-term security.”

Under automatic enrolment rules introduced in 2012, employers are required to automatically place new recruits into a pension scheme of minimum standards. To avoid it, employees must explicitly opt out. The plan has been deemed a huge success, encouraging more than 11 million people into retirement saving for the first time. Until recently, only 10 per cent of employees were opting out.

The PMI’s poll of 2,000 employees found that 7 per cent had opted out in the past 12 months and 13 per cent had asked to make lower contributions, which in many cases would mean they missed out on parallel contributions from their employer.

Automatically enrolled staff have a minimum of 5 per cent of their annual pay above £6,240 deducted, with employers chipping in another 3 per cent. By opting out, and allowing for extra tax and national insurance, an employee on £20,000 would get an extra £550 in take-home pay, or £46 a month.

Cook said she expected the numbers opting out or making smaller contributions to rise, “possibly rapidly”, as households grapple with the cost of Christmas and the reduction of energy price subsidies from April.

“Our research shows that a significant proportion of the general public is saving at rates that are lower than they were 12 months ago,” she said. “They are aware of the impact this will have, but feel that they have no alternative.”

Under the rules, staff who opt out are re-enrolled after three years and have to opt out again if they want to. The aim is to use inertia and “nudge economics” to encourage more pension saving.

Research this month by Aviva found that 23 per cent of workers in a pension fund were considering stopping, pausing or reducing their contributions.

Read more:
Millions halt pensions to pay their bills amid rising cost of fuel and food

    You May Also Like

    Business

    The head of the International Monetary Fund has warned of increased risks to the stability of the financial system after weeks of banking sector...

    Business

    1.22 billion people use Instagram every month. That’s a huge number of Instagrammers trying to hit it big on the platform all at the...

    Business

    The Home Office has made next to no progress in tackling criminal fraud during the past five years, despite it having become Britain’s most...

    Business

    Since the rise of online casinos, cybersecurity has become a major concern for both casino operators and players alike. The transactions that go around...

    Disclaimer: rightdecisionnow.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2023 rightdecisionnow.com | All Rights Reserved