Letter from the Editor: One in six people have stopped paying into their pension — have you?

If money is tight, pension contributions can feel like an obvious place to make savings.

After all, if you reduce or stop money being deducted from your pay each month, you have more money in your pocket to cover bills.

But there is a longer-term cost to this, and it could be greater than you think.

What’s the cost?

New research reported this week suggests that one in six people have stopped paying into their workplace pension, with pressure on household finances thought to be a key reason.

That’s completely understandable.

For most households, the cost of everyday life has risen significantly in recent years.

Rent or mortgage payments, filling up your car, energy bills, food… increases in all these areas have put significant pressure on the monthly budget for the majority of people.

And when you need to find extra money, reducing what you’re paying into your pension can feel like an easy way to free some up, without feeling a difference to your lifestyle right now. And it’s not necessarily a forever-decision. It could just be a temporary stop.

Sounds like a no-brainer in many ways. But before you make the decision to stop, it’s important to consider whether what you’ll gain is worth what you could lose.

There are two main ways you could lose out by stopping or reducing pension contributions:

You could be giving up ‘free’ money from your employer

One of the biggest things to consider before stopping your workplace pension is whether your employer contributes to it.

In most auto-enrolment workplace pensions, your employer has to make a minimum contribution of 3% of your yearly “qualifying earnings”. (For the tax year 2026/27, “qualifying earnings” means everything between £6,240 and £50,270.) While the legal minimum is 3%, some employers pay considerably more. In the Local Government Pension Scheme, for example, employer contribution rates can be in the double digits, with latest figures showing an average total contribution rate of 16.5% coming from employers in these kinds of schemes.

What could amount to thousands of pounds per year of ‘free’ money into your retirement fund is a big loss. You’d need to be very sure the immediate benefits brought by the money in your pocket now are absolutely worth it.

This is one of the reasons it’s important to check the details of your pension scheme before deciding to opt out.

You’re losing out on years of potential growth

There’s another reason pension contributions can be valuable: the money doesn’t simply sit there gathering dust.

Pensions are usually invested, meaning your contributions have the potential to grow over time if the value of the assets your pension is invested in increase. And that growth can be quite significant if we’re talking about decades.

Although no investment growth is guaranteed, historically, money invested in a diversified portfolio (the type that pension schemes choose by default for pension savers) and allowed to stay there for many years produces growth. The length of time is important because it gives your money time to recover and bounce back after short-term dips and shocks in the market.

So, it’s not just your monthly deposits that you’re losing from your future retirement pot. It’s the potential growth, too.

For example, if you were to stop contributing £200 a month for five years, you’d have paid £12,000 less into your pension over that period. If that £200 per month grew at an average rate of 5% per year, you could have missed out on an extra £13,618 to fund your retirement plans.

And that’s before you’ve considered employer contributions and the compound growth you could achieve when those monthly payments are added to the total.

So, are you saying I should never stop my pension contributions?

No.

If your household budget simply doesn’t stretch to covering your usual pension contributions, it could be that the sacrifices you’d have to make to keep them going are too high.

Your first priority is having enough money to pay your essential bills and deal with emergency expenses.

If you’re relying on expensive borrowing to make ends meet, paying a large amount into a pension may also not make financial sense.

The important thing is to understand your options before simply stopping your contributions altogether.

Ask yourself if:

1. You could reduce the amount you’re contributing rather than stopping altogether

If you’re currently paying 8% of your salary into your pension, for example, could you temporarily reduce that to 5%?
You’d still be putting money aside for retirement while freeing up some extra money each month.

However, check whether reducing your contribution would also affect how much your employer pays in.

Some employers will match your contributions up to a certain level, so reducing yours could mean losing some employer contributions too.

2. You are contributing more than the minimum required

If you’re putting more into your pension than the minimum required by your workplace scheme, you may have some flexibility.

It’s worth checking exactly how much you’re contributing and what your employer expects you to contribute if they match it.

3. There another expense you could cut first

If you’re thinking about stopping your pension because your finances are under pressure, look at your overall budget.
Are there subscriptions you no longer use? Could you switch insurance or energy providers? Are there other regular expenses you could reduce?

This isn’t about cutting back on everything just to keep paying into your pension. It’s about understanding whether stopping your pension is really the best place to make the saving.

4. You could restart your contributions later

If you do decide to pause your pension contributions, set yourself a reminder to review the decision again in a few months. It’s very easy to get used to additional income and forget about your pension.

Your financial circumstances may have changed in a few months, and you may be able to start contributing again.

Stopping pension contributions can be a sensible short-term decision in some circumstances. But before you do it, make sure you understand what you’re giving up — particularly if you receive employer contributions.

The aim isn’t necessarily to pay as much as possible into your pension. It’s to find a balance between having enough money to live your life today and putting enough aside for the life you want in retirement.