Increased pressure on personal and household budgets often leads to cutbacks. However, the danger of stopping pension contributions should never be underestimated.
Few people or analysts predicted how tough 2020 would be. Even after the initial wave of coronavirus was factored in, most hoped that things would improve towards the end of the year.
Stocks and other investments linked to pensions were hit hard. People were naturally worried about their retirement funds.
Throw in additional financial headaches like reduced hours or unemployment and it’s no surprise that some people have looked at their outgoings to make cost savings.
Unfortunately, workers in the 18-35 age bracket have been hit hardest because of Covid-19 shutdowns.
According to the UK Parliament website, nearly 50% of workers under 35 have been adversely affected because of the pandemic.
With reduced cashflow, it is this age group that risks their retirement income if they choose to reduce or stop pension contributions.
How do pension pots grow?
One thing about pensions and savings is clear – the earlier your start the more you accumulate over time.
Even with rates low, compound interest means that even small gains will have a powerful effect on growth over 10, 20 and 30 years.
The same applies to pensions. Although the value of investments can go up and down, history shows that with careful management over time there can be steady growth.
However, you need to begin as early as you can. Also, the investments should be consistent – and reducing or stopping contributions will hamper longer term performance.
A simple chart from the This Is Money website shows how investing £100 per month grows if returns are around 5%.
The pot would be worth around £15,000 after then years, then £41,000 after 20 years, and finally about £83,000 after 30 years.
Nothing is guaranteed, but the trajectory is clear – the early savings provide a solid base on which future returns are built.
Your pension is a priority
With Covid putting emotional and financial pressure on people there will be a temptation to make quick and easy cuts to outgoings.
Where money is concerned, you should always think twice and consider all implications before acting.
Trimming the satellite TV package will reduce your viewing options but you can always catch up later.
Cooking at home and avoiding takeaways will involve more time but will also save you money.
Even giving up a car lease will cause inconvenience, but you can still get to work by many other means.
Halting contributions to your pension, however, potentially damages your retirement goals. Playing “catch up” would mean paying in much, much more each month in future.
Is that a realistic option?
Moreover, any additional employer contributions will also be lost. That, too, will contribute to reduced fund performance over time.
Independent help planning your pension
Sometimes, you need help seeing the bigger picture.
While drawing a pension and enjoying a retirement seems a long way off, the financial choices made today will have a significant impact on your standard of living tomorrow.
Logic Wealth Planning offers independent financial advice based on many years of experience.
Our team of advisors have helped clients though many turbulent periods across the last few decades. Our clients’ long-term goals are always the focus, so they can enjoy peace of mind in retirement.
Where tough choices need to be made, we will present the best possible options for your situation.
Please call us on 0808 1234 321 or email firstname.lastname@example.org to discuss how you make pension contributions.
Please be aware the value of investments or income from them can fall as well as rise. We are here to help you make informed decisions as you put important things in place for you and your family.
* Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire, and the surrounding area, but not limited to the region.