Potentially more than three million people have reduced, or stopped completely, their pension payments as a result of the economic impact of Covid-19.
One in 10 working adults with a pension have cut back on saving for retirement due to the coronavirus pandemic, according to new research from Scottish Widows.
The research found that potentially more than three million people have reduced or stopped completely their pension payments as a result of the economic impact of Covid-19.
According to Scottish Widows, the economic fallout of the pandemic has resulted in savers having to make a trade off between short-term financial needs and longer-term financial needs such as pensions.
A survey carried out by the pension provider found that roughly a quarter of workers expressed concern about paying for essentials such as food and energy, while 20% were concerned about paying their rental or mortgage costs. Meanwhile, one in five said they have seen their income fall because of coronavirus.
These concerns are weighing on long-term savings, with 10% of those surveyed saying that that they have reduced or stopped their pension contributions.
Pete Glancy, head of policy at Scottish Widows, noted: “The Covid-19 crisis has revealed a painful lack of financial resilience in the UK, leaving millions of people exposed with little or no safety net to fall back on.
“As the full impact of this crisis becomes clearer, more people may feel forced to pay for today’s essentials with tomorrow’s savings. However, this will only prolong the economic pain of coronavirus and could result in more people facing poverty in retirement.”
Research also found that the self-employed have been disproportionately impacted by the virus and hence have seen the most reduction in pension savings. It was found that two out of every five self-employed workers saw a drop in their income. As a result, almost one in five have felt the need to suspend or reduce their pension contribution.
This compounds an already existing problem with the self-employed struggling to save adequately for retirement due to not being included inside auto-enrolment.
For more than 10 million people that are now saving into pensions as a result of the auto-enrolment initiative the minimum contribution rate is currently 8% of qualifying earnings, of which at least 3% must be paid by the employer. This means that if you are opted in, you contribute 5% from your income, and your employer contributes 3%.
The research from Scottish Widows also found that younger workers were more likely to be reducing their pension savings. The survey found that one in five of 18-24-year-olds have reduced or stopped pension contributions. On top of that, 7% of young workers were found to have moved their pension into a lower risk retirement fund.