Workers pausing pension payments risk losing thousands in retirement

By tadmin  | Date: 2022-05-17

Workers pausing pension payments risk losing thousands in retirement

UK-based financial services firm, Aegon, has reportedly warned UK workers pausing their pension contributions through the cost-of-living crisis that the decision could risk losing out on thousands of pounds in retirement. According to the Edinburgh-based company, these individuals could lose over £13,600 ($16,669) in their retirement phase.

Over the recent years, rising bills have led to huge financial pressures on families. This has been the major reason behind families considering to put less into pension contributions.

Amid such a scenario, Kate Smith, Aegon’s Head of Pensions, has warned that before making any such decisions, their long-term impacts should be carefully considered. Not opting for pension contributions may provide a small immediate boost to the take-home salary. But it is very likely that these employees would lose valuable employer contributions that help in enhancing retirement savings.

Furthermore, if someone opts out of the scheme for a period of two years, they could miss out on a sum of £9,100. If the period is extended to three years, the amount of loss could be £13,600. The exact amount being put into an employee’s monthly pension contribution is dependent on their salary.

The aforementioned figures have been calculated on a scenario of a 25-year-old with an average pay of £29,000, making a monthly contribution of £75, stated Aegon. Additionally, it has been considered that the amount is increasing by 3% every year with 4.25% investment growth.

For the uninitiated, UK employees gets automatically enrolled into a workplace pension scheme provided that they are in the age group between 22 and the state pension age. For the same, the income of the employee must be at least £10,000 a year.

Enrolment into workplace pension schemes is mandatory for employees. The minimum monthly contribution that needs to go into an individual’s workplace pension is 8%. This is inclusive of a 5% contribution from the take-home salary and 3% from the employer. However, workers could still choose to voluntarily opt out of the scheme.

Source credit: https://www.mirror.co.uk/money/millions-workers-warned-pension-mistake-26957325

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tadmin

tadmin currently works as a content developer for This is Our Town Richmond Upon Thames.

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