Two-fifths of younger workers have either reduced their pension contributions or stopped saving for retirement altogether as the lockdown squeezes their personal finances, research has found.
A poll of 2,000 people conducted in early June by Royal London found 28 per cent of those aged between 18 and 34 had reduced their pension contributions, with a further 12 per cent stopping their contributions altogether. In comparison, just 16 per cent of those aged 35 to 53 either stopped or reduced their pension contributions.
Among those who had reduced or stopped contributing, affordability was cited by four in 10 respondents, which Lorna Blyth, head of investment solutions at Royal London, suggested workers were compensating for lost income caused by the coronavirus outbreak. This rose to 51 per cent among those aged between 18 and 34.
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“The Covid pandemic has put a real strain on many people’s finances and the research shows many are looking to reduce their outgoings by cutting or even stopping contributions,” said Blyth.
Other reasons for cutting back or halting pension contributions included concerns over a volatile investment market, that individuals had more important priorities or that they had left their employer.
Only 11 per cent of respondents started making contributions for the first time or increased them during lockdown.
However, the survey did find this was likely to be a short-term problem, with eight out of 10 (79 per cent) saying they planned to resume or increase their contributions at some point in the future, including 37 per cent who said they planned to do so in the next three months.
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“It is vital that people follow through with their intentions to resume contributions as soon as they are able if they are to avoid long-term damage to their retirement prospects,” said Blyth.
Earlier research by the UK’s financial watchdog, the Financial Conduct Authority (FCA), found that younger people were most likely to be financially affected by the outbreak. While baby boomers – aged between 55 and 74 – were most likely to have seen the largest fall in income (an average 23 per cent drop in earnings), they were still less likely to be in financial difficulties. This was because they tended to have higher salaries to start with as well as larger amounts of savings.
By comparison, the FCA found those aged between 20 and 39 saw an average loss of earnings of 18 per cent, while those between 40 and 55 saw the lowest average fall, at 17 per cent.
“While it is too soon to say what the full impact of Covid-19 will be, it seems likely the crisis will add further gravity and complexity to [existing] challenges, with the clear potential for the pandemic to exacerbate the patterns of difference between generations that have emerged over the past 30 years,” the FCA report said.