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£35bn at risk if pension savers take contribution holidays

More than 1.5 milion people are planning to stop making pension contributions because of the looming recession, according to Axa.

The insurer says almost £35bn worth of contributions could be forfeited if all those planning to take a pension holiday halted contributions for two years.

Axa surveyed over 2,000 people and found that one in twelve pension savers felt they had to take a pension holiday in the next two years, with 35-44 year olds most likely to cut saving.

Over half said they were taking a break due to the increased cost of living or to clear debts. A further 13 per cent put it down to increased mortgage payments.

A two-year break could cut a 25-year-old man’s occupational pension pot by £33,800 when he retires. A 35-year-old would be worse off by £28,700 and a 45-year-old by £16,900. Even a 55-year-old would suffer a £8,500 drop in his occupational pension fund after a two-year break in contributions.

People with stakeholder pensions will also suffer from a break in contributions, according to Axa. A 28-year-old man contributing £300 a month into a single life stakeholder pension will end up with £59,700 less in their final pot if they take a two year break. That equates to £1,047 a year less in the value of their annuity payout.

Axa head of pensions and savings policy Steve Folkard says urgent action is required to discourage people from halting pension contributions.

He said: “Taking a pension break should be a last resort because of the long term repercussions. If you put £300 a month less into your pension for two years you will have a pension pot that is tens of thousands of pounds short when you retire.”

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