One in ten UK workers have paused their pension contributions during the Covid-19 pandemic with their absence from the defined contribution (DC) space bringing serious implications for the retirement landscape.
Canada Life surveyed 2,000 UK adults through August and find a further 13% had considered pausing contributions.
The biggest reason (37%) cited among those who had was to use the money for essential spending, while 30% had paused because of redundancy or furlough.
Pausing contributions to a workplace DC pension for a period of three years "could wipe thousands off a pension pot" the analysis has found.
Unless workplaces allow for contributions to be significantly increased upon re-joining, a three-year "pension holiday" has serious implications for savers of all ages.
The analysis found that a 30-year-old earning £30,000 could lose over £45,000 from the value of their pension by opting out, resulting a drop in value of the pension at age 67 of over 9%, or £45,000 less at retirement. This saver would then need to make an additional contribution of nearly £13,000, through additional employer contributions, employee contributions or a combination to make up the shortfall
"The results become starker as an individual gets closer to retirement, for example a 50-year-old earning £100,000 a year with an existing pension valued at £100,000 could see their pension pot fall by over £70,000," Canada Life said.
"With Covid-19 hitting personal finances harder than ever it is not too surprising that many have started to view their pension contributions as discretionary," said technical director Andrew Tully. "Any choices made now could have real significance to the quality of life in retirement, so it is vital that the impact of this is understood properly, from the outset."
He continued: "Savers will also need to understand that contributions will need to be higher than they were before and in some cases by as much as a fifth for those closer to retirement."
This follows analysis from Aviva last month which found the majority of savers in a DC workplace scheme were concerned about funding retirement post-coronavirus.
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