PENSIONERS have been warned they could be missing out on a whopping £62,000 when they retire.
Savers should be aware of the "impact" of cutting their pension contributions due to rising costs, says Scottish Widows.
The pension provider has warned that retirees could be £62,000 poorer if they did decide to stop contributing to their workplace pension.
A workplace pension scheme helps employees save for their retirement outside of the state pension.
Since October 2012, employers have had to automatically enrol workers into one of the schemes.
There are minimum contributions that you and your employer must pay.
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Workers have the option to opt out and while that can be appealing when you're cash strapped, it's not always a good idea.
Doing so could lead to less cash later on, according to Scottish Widows.
Pete Glancy, head of policy, pensions and investments, said: "Faced with rising costs of living, it can be tempting to cut pension contributions.
"However, the impacts of this short-term decision on your future wealth would be stark – particularly for women."
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To explain just how much cash could be lost, Pete offered a hypothetical scenario.
He said that if a 40-year-old single woman permanently cut her pension contributions by £1, 824 annually, she would be £62,000 poorer by the time she retired.
This is accounting for the projected investment returns that would be lost by stopping the contributions.
It comes as the company released its annual Women and Retirement Report for 2022 this month.
He added: "Inflationary pressures are always challenging.
"It can be hard for savers to mitigate against them – but, there are some small ways to safeguard your future finances from today’s rising costs.
"Maintaining regular contributions to a private pension is one of the best tools, as it’s an incredibly tax efficient way to maximises the amount you’ll have in the future, when the time comes to retire."
Pete said he would like to see the rules surrounding employer contributions "relaxed" slightly.
He said the situation would be improved by allowing lower paid employees to temporarily change their employee pension contributions if their financial situation changes.
But without losing their right to employer-paid pension contributions.
Pete said: "Employer pension contributions are effectively deferred pay, and anyone struggling to make ends meet shouldn’t be penalised further down the line for needing to keep hold of more of their money now.”
What is pension auto-enrolment?
Auto-enrolment is when you're automatically placed into your workplace pension scheme, with your contribution deducted from your pay packet.
Bosses have had to automatically enrol staff into pension schemes since October 2012 to get workers saving for their golden years.
The only exception is if you're under the age of 22 or earn under £10,000, in which case you have to ask to opt in.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
Crucially, the contribution you make as an employee is deducted before tax – so the actual amount you're putting away is less than it sounds.
For example, if you pay 20% tax on your earnings, and your pension contribution is £100, this only really costs you £80 as this is how much that amount would have been worth after tax.
While opting out of a workplace pension would increase your monthly salary, it's best to only do this as a last resort, as you'll have less in later life, as Pete said.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
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