Of those who paused contributions the biggest reason (37%) was to use the money for essential spending.
Some 30% paused because of redundancy or furlough.
Analysis for Canada Life found that pausing contributions to a DC pension for three years could knock thousands of pounds off a pension pot unless contributions were increased significantly on re-joining.
Canada Life looked at the implications three-year pension holidays would have for individuals at age 30, 40 and 50 at different earning and contribution levels. Pension ‘losses’ ranged from £45,000 to £71,000 for some pension savers (see below).
The analysis reveals that a 30 year old earning £30,000 could lose over £45,000 from the value of their pension by opting out of a pension for just three years. This would result in a drop in value of the pension at age 67 of over 9%, or £45,000 less at retirement.
Cost of a pension holiday
|
Fund value at age 67 with no contribution ‘holiday’ |
Fund value at age 67 after a three year contribution ‘holiday’ |
Amount ‘lost’ |
Additional contributions required to make up shortfall |
Thirty year old earning £30,000 a year and contributing a total of 8% to a pension (assumes no initial pension savings) |
£490,559 |
£445,020 |
£45,539 |
£12,889 |
Forty year old earning £50,000 a year and contributing a total of 8% to a pension, existing pension value £50,000 |
£583,005 |
£536,410 |
£46,595 |
£13,139 |
Fifty year old earning £100,000 a year and contributing a total of 10% to a pension, existing pension value £100,000 |
£640,505 |
£568,992 |
£71,513 |
£17,886 |
Source: Canada Life
Canada Life points out that opting out of an automatic enrolment scheme will only see people re-enrolled 3 years later, unless they make an active choice to re-join in the meantime.
Andrew Tully, technical director at Canada Life, said: “While a three-year pension holiday may seem like a minor break in the context of a career spanning decades, our analysis shows that the long-term impact of that decision could be significant.
“It is worrying to see that 13% of respondents were actively considering a pension holiday. However, there are some ways to mitigate the potential impact. Our analysis shows that losses can be recovered at each stage of a working life as long as there is a plan in place to resume contributions as soon as practicable.”
• Opinium surveyed more than 2,000 UK adults from 21-25 August.