As the UK population is squeezed by unprecedented financial pressures, a growing number of workers are planning to stop or reduce their pension contributions, a new study has found.
New research commissioned by Cushon, the fintech workplace pension and savings provider, has revealed that nine in ten of people are struggling to make ends meet – with only one in ten (10%) saying they don’t have any financial concerns - raising fears around people’s financial future as well as their present.
The rising cost of living is a real concern for more than half of the UK (52%) with those aged 55 and over more concerned (56%). Rising bills (59%) are the biggest worry for UK adults, with the figure standing at 64% for women and 74% for the 55+ age group. And a third (32%) of people are concerned about the spiralling cost of putting petrol or diesel in their vehicle.
Amid these growing concerns, a quarter (25%) don’t see how they will be able to pay their bills over the next six months. This figure rises to over a third (36%) of 18-34 year-olds.
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As a result of the rising cost of living, the UK is cutting back on its savings - more than half (54%) admit they are no longer able to save as they want to. And worryingly more than one in ten (13%) say they plan to stop or reduce their pension contributions to save money in the short term – increasing to one in five (21%) 18-34 year olds.
These findings increase fears that many across the UK are heading towards poverty in retirement. Recent research shows that those aged between 50 and 64 have pension savings that are on average 58% short of what they need, adding up to a total annual savings gap of £132 billion*. Equally worrying, a recent report by The Centre for Ageing Better highlighted that one in five pensioners, over two million people, are already now living in poverty.
Ben Pollard, CEO and founder, Cushon, said: “Things are exceptionally tough right now, and it’s really concerning that the rising cost of living has forced one fifth of 18-34 year olds to plan to either reduce or completely stop their pension contributions. People need help and the right support to avoid sleepwalking into retirement.
“Many people also don’t realise they can benefit from tax relief on their pension. When you pay into a pension, you effectively get a government bonus of at least 20p for every £1 contributed, and when employer contributions are taken into account, it’s an even better deal. There are also a wide range of payroll-enabled workplace savings products that can allow people to get more value from their pension. One such solution is salary sacrifice, which is a great way for employers to help their employees save money and make their pay go further.”
Salary sacrifice is something that can be arranged by every employer. If someone chooses this option, they agree to reduce their salary by an amount equal to their pension contributions, and their employer will then pay their total pension contributions which saves both the employee and the employer money in lower national insurance (NI) contributions.
Although it makes someone’s salary look lower, take-home pay is actually higher due to the NI saving, while the money going into the pension stays the same. Someone earning £30,000 a year can save an additional £200 through salary sacrifice**.And yet despite the clear benefits, Cushon’s research highlighted that nearly two-thirds of people (63%) aren’t aware of salary sacrifice and of those that are, only (34%) of people with a workplace Defined Contribution pension use it.
“There’s a worrying lack of understanding when it comes to salary sacrifice,” added Pollard. “As well as low awareness of it as an option, there is a widespread misconception of what it is and how it works, partly due to the negative sounding name. Both employers and pension providers need to do more to educate people on the benefits.”