Cost of living crisis affecting pensions

The first signs of the cost of living crisis in pensions is beginning to emerge, a survey of 112 pension schemes by the Pensions and Lifetime Savings Association has found. One in five pension schemes surveyed by the PLSA have seen savers asking about reducing or stopping their pension contributions (19%), with a fifth wanting early access to their pension after age 55 (17%). Only a quarter of scheme respondents said they have seen no changes in saver behaviour over the past few months (28%).

More positively, only around one in ten schemes surveyed said that they have seen members wanting to opt out (12%), which is only a little above the long-term trend of 9%.

While savers haven’t tended to make changes to their contribution rates, around one in five schemes surveyed reported that they had seen an increase in members seeking help and guidance on financial management (19%).

The survey also showed that almost half of pension schemes (45%) expect more savers might want to reduce pension contributions in the next six months and around one in three are also expecting members to want to have early access to their pension after age 55 (34%).

What pension schemes have done to help

With the cost-of-living increasing, pension schemes have been adapting to ensure they meet their members’ needs. The PLSA’s survey found around a third (35%) of PLSA members have put special measures in place to support their members during the cost-of-living crisis, with more than a quarter (28%) planning to do so or provide additional measures.

The main measure that has already been put in place for members is signposting advice or guidance on managing debt and financial wellbeing (68%). To date, over half of those surveyed have signposted information on pension planning (55%) and put information of the risk of pension scams in place (52%).

Around a third have signposted information on automatic enrolment including that the employee can opt out and will be automatically re-enrolled after a period of time (36%), and three in ten have signposted support/guidance on transfers (29%).

Advice to Savers

Savers who are considering reducing or pausing their pension contributions or – for over 55s – dipping into their pot to cover short-term expenses, should understand that doing so could have a significant impact on their future retirement income.

For members of workplace schemes, this would normally mean losing out on employer contributions, and for those contributing to any kind of scheme, it would mean missing out on tax relief from the Government.

Additional support may be available for members who are struggling. We encourage them to speak to their employer or pension provider before making any decisions. They may also want to make use of Government websites such as Money Helper. Pensioners on low incomes should also check whether they are eligible for additional payments in the form of Pension Credit.

The PLSA will be producing for its member pension schemes best practice guidance on communicating issues on the cost of living in the coming weeks.

Nigel Peaple, Director of Policy & Advocacy, PLSA, said“As the cost-of-living crisis continues to pose challenges for many people up and down the country, we are seeing the first signs of this manifesting itself regarding workplace pensions. Our survey shows opt-out rates remain low and that most people are choosing to maintain their pension contributions with the related benefits from employer contributions and tax relief.

“However, the cost-of-living crisis will affect each household differently, so it is not surprising that some people have been asking about accessing their pension early, once they are over 55 years of age, and that schemes believe some savers will reduce their pension contributions over the next 6 months. Many schemes are working hard to provide information and guidance that will signpost the options savers have regarding pensions. We hope this will support people in making well informed decisions.”

The survey comes ahead of the PLSA’s Annual Conference in Liverpool on 12-13 October, where cost of living concerns in the context of pension saving will be a major theme.

The research was conducted by the PLSA from 05/09/22 to 16/09/22 with responses from 112 pension schemes ranging in size from schemes with AUM from under £30m to over £3bn.