The number of savers opting out of their company pension scheme has increased by 29% from March to July this year, according to a report from digital pensions platform Penfold.
This comes as the cost of living is impacting people’s financial stability. The ONS reported that the CPI has reached a 40 year high of 9.4%, adding more pressure to struggling families.
Penfold warns that opting out of pension schemes will cost them in the long run. It said that if a 20-year-old contributing £200 per month to their pension pauses contributions for three years, the value of their final pension pot at retirement will fall by £28,074, from £268,675 to £240,600, more than a 10% decrease.
For a 25-year-old contributing the same amount, their pension pot will fall in value by £24,779 if they pause contributions for three years, while a 30-year-old will see their pot will fall in value by £21,870 by the time they reach retirement age.
Penfold co-founder Pete Hykin said, “Everyone understands that the pressures facing today’s savers are considerable. Many people are feeling the pinch on their incomes and savings, but it’s vital that those people who are financially able to pay into their pension continue to do so.
“The increasing number of opt-outs is a worrying trend, especially as the impact of pausing contributions, even for just a short period, can have a hugely detrimental impact on an individual’s finances in retirement, especially for those starting out in their career.
“Auto-enrolment providers and employers need to work together to educate and empower employees to make the right financial decisions during these turbulent economic times. If employees are unaware of the consequences of pausing contributions for a few years, it can feel like an easy decision to make. But this is not operating in a context where they have all the information to make an informed decision. “
Penfold recently raised £7m for its Series A funding round.
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