It’s hard to get away from the fact that life just feels more expensive. Whether it’s grabbing a cup of coffee with friends or putting meals on the table to feed the family, there is no doubt we are currently experiencing an unprecedented hit to the household pocket.
So, in trying to juggle the current situation is cutting your pension contributions a good idea?
Firstly, if you are struggling to pay things like your mortgage, your bills or put food on the table, then reducing any of your financial commitments is going to hopefully relieve some of the stress. Reducing your monthly pension investments may seem like a great idea to offer some short-term gains, the long-term pain could be quite substantial.
To keep things simple let’s just focus on Workplace schemes.
When it comes to Workplace pensions, there are a number of things to consider if you are thinking of reducing your monthly commitment. The first being critical, remember that at least half the cost and in many cases, much more are being met by your employer and the tax man. If you are paying additional voluntary contributions, then this could be an area of consideration in your budgeting, however if you can keep paying the minimum to benefit from your employers’ contributions, this does make solid financial sense.
Nowadays most people working within the private sector are in Defined Contribution (Investment based) pensions. The number one rule of investing is buy low, sell high. Its’ no surprise that when that we feel the pinch the markets are generally having a tough time of it too, so in a scenario where you stop “buying in” when the markets are down, you are effectively always paying a higher price for your investment – essentially you never get the benefits of buy low! For some light bedtime reading, you can always ask me for my 7-page example of pound cost averaging, it’s a real thriller!
Ultimately, if it’s between heating or eating or adding to your pension pot, then of course the pension should rightfully be the option to get cut, but if you can possibly keep it going then the future you will really thank you for it.