The workers are considering skipping their regular pension payments to help pay rising energy bills in 2022 – but that could mean they will lose £77,000 by the time they reach retirement.
With the energy price cap increasing by £693 from April 1, the average customer would have to pay an additional £57.75 a month for their energy.
A study by Penfold, a digital retirement platform, has suggested that almost 13 million savers are saving less than £100 on their retirement each month and may need to cut their contributions to cope with the rising cost of living .
Those who cannot afford to save a lot of money on their pension could consider cutting their contributions altogether to deal with the cost of living crisis, according to Penfold
Of these, he said more than 6million had only saved between £1 and £50 on their pension each month.
As this is overshadowed by the typical increase in energy bills, Penfold said they may decide to pay nothing more into their pension at all.
But experts have urged savers not to skip their pension contributions to pay their bills because long-term losses could see their pension fund drop by as much as £77,000 in the worst-case scenario.
Young workers would be most at risk if they stopped their pension payments now, according to Penfold.
A saver currently aged 30, for example, would lose almost £1,750 on the value of his last pension pot at 67 if he cut his pension contributions by £57.75 a month for a year to cope to rising energy costs.
If energy bills remained at the same level for five years and these savers continued to reduce their contributions, the potential losses could amount to £9,000.
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And if, in the worst-case scenario, energy prices remained at the same level until retirement age, these savers could lose almost £53,000 of their total pension pool by reducing their contributions from retirement to meet rising costs.
A 20-year-old would miss even more, with total losses reaching £77,600.
According to Penfold, an individual’s pension contributions should be 12% of average earnings (currently £31,285) for a “modest” pension.
This would mean monthly contributions close to £313 per month.
For the 40% of adults who currently pay less than £100 a month, cutting their contributions further could seriously damage their quality of life in retirement.
Chris Eastwood, co-founder of Penfold, said: “The UK is facing a serious cost of living crisis, and with these rising energy bills people will struggle to afford their level of usual life.”
“Our figures show that savers stand to lose huge sums of money in retirement if they stop or reduce their pension contributions to help pay for the immediate costs ahead.
“On top of that, we already know people aren’t saving enough for later in life and these extra costs mean saving for retirement is likely to become less of a priority for many – although that’s completely understandable. , it could be dangerous for the future life. .’
The cost of energy per kWh has skyrocketed due to soaring wholesale gas prices
Relying more on credit to pay rising bills
The UK energy crisis has prompted one in five people to rely on credit cards, loans and overdrafts to manage rising costs since the start of the year, separate data shows.
CreditKarma has predicted nearly £5bn has been loaned out since the start of 2022 to cover rising energy bills and the cost of living.
Unable to avoid rising costs, more than a quarter (26%) fear they will no longer be able to pay their bills, the credit broker said.
The vast majority (78%) of those who have borrowed money to help with rising bill costs also fear they won’t be able to repay the debt.
Those who are concerned about rising energy bills, you should speak to their supplier to see if they are eligible for rebates or support.
Switching providers to save money doesn’t make sense for most customers at the moment, as capped ‘default’ rates are cheaper than fixed ones.
However, customers might consider getting a smart meter as it could save them money.
For those considering reducing their retirement contributions, Eastwood advises not to stop contributing altogether.
“We want to help savers through this by providing greater flexibility on how much and how often they save into their pension, particularly when finances are tighter than usual.
“We’ll give people tools that can project their savings into retirement and help them break that number down into how much they need to save each month now to afford the retirement lifestyle they want.
“It’s also essential that providers provide easy access to customer-facing pension experts who can help them make the right choices when it comes to managing their retirement in a tougher economic climate.”
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