Affordability Main Reason For Smaller Contributions, But Later Life Experts Warn Of Longevity Issues
Young people are the most likely to have cut down or stopped paying into their pension altogether, prompting fears from later life experts this could affect their retirement funds.
New research from insurance firm Royal London found that 40% of people aged 18-34 either reduced their pension payments or stopped them altogether. The next age bracket up of 35-54 had only 16% of respondents had done the same.
The survey found affordability was the most common reason for decreasing or stopping pension contributions, particularly for millennials where 51% of 18-34 year-olds said this was the main reason for doing so.
Research from national law firm Irwin Mitchell and Cebr, first presented earlier this year, found that workers needed to be paying in £575 a month extra into their pensions to cover the cost of later life care unless the Government put in place a social care plan.
The news that young people are decreasing or stopping their pension payments has prompted later life experts to urge a return to regular payments.
Expert Opinion“The coronavirus pandemic has sadly thrown a spanner in the works for a lot of people’s finances, so it’s unsurprising to see many young people in particular have either reduced or stopped contributions to their pensions because of affordability issues.
“However, now more than ever we need everyone to be putting in funds to their pensions from the get go. Our own research from earlier this year found that people needed to be putting hundreds of pounds more into their pensions each month to be able to afford later life care and to give themselves the best chance in their retirement years.
“This is of course unachievable for many, especially with the other big life milestones that add up the cost like mortgages, weddings and having children, so the onus once again falls to the Government to introduce a social care plan in case young people aren’t able to contribute to their pensions for many years after this crisis.” Kelly Greig - Partner
There was a positive note from the research that young people would return to their normal levels of contributions – 79% of respondents said they wanted to resume or increase their pensions payments in the future – but later life experts warn this may be easier said than done once that extra money is in the bank account.
The Office of National Statistics found that younger people have been hit hardest financially by Covid-19, where more of their spending is likely to go on essentials and they’re less likely to have savings to hand if things get tough.
Kelly continued: “The real issue is that once people stop contributing to their pensions, it can be difficult to get back into it – there’s always something else the money needs spending on. Before you know it, years have passed and then the vital compound interest effect is lessened and many are left out of pocket for their retirement years.
“I suspect a government public awareness campaign reminding people of the importance of saving for care would go a long way after the pandemic crisis is over. Alternatively, employers could do a review of whether their employees have cut back their contributions and could prompt a yearly or half-yearly review.
“Everyone deserves a comfortable retirement and these simple steps could go a long way in making sure young people, already adversely affected by the pandemic more than any other age group, aren’t hit again later in life when they wish to enjoy their later years or pay for care.”