UK voluntary pension contributions slashed by half in 12 months

Voluntary pension contributions made by UK adults have almost halved in the past 12 months, according to new research from Prudential, which reveals that those who pay into company and private pension schemes say they have cut contributions by a staggering £134 a month compared with last year.

The Prudential 2008 Retirement Savings Report reveals that non-retired UK adults say they are contributing an average £144.57 a month to private and company pension schemes, equivalent to just £1,734 a year. This compares with an average monthly contribution of £279.38 a month made into private and company pension schemes by UK adults questioned for the 2007 Prudential Retirement Saving Report.

Worryingly, the report also reveals that more than half (55 per cent) of non-retired UK adults say they do not contribute at all to a private or company pension scheme (with 63 per cent of women, compared with 44 per cent of men saying they do not pay into a private or occupational pension). This compares with 54 per cent of adults who said they didn’t contribute to a pension scheme in 2007.

Despite this, those paying into company or private pension schemes anticipate they will be able to draw an average annual pension of £22,504 a year, with men expecting to be able to draw an annual pension of £26,355.

But Prudential warns that to achieve £22,504 as annual pension would require a 20-year-old man to save £286 every month until the age of 65, and a 20-year old woman to save £413 every month until the age of 60 – equivalent to a total pension pot of around £326,000 for a male aged 65 and £341,000 for a female aged 65.

Gary Shaughnessy, Prudential Managing Director Retail Life & Pensions, said: “It is deeply concerning to see that the amount UK adults are personally paying into pension schemes has fallen so dramatically in the past year. With rising prices and a squeeze on savings, reducing pension contributions may look like an attractive short-term option, but the reality is that continuing to save as early as possible is vital if people are to build a pension pot large enough to maintain their lifestyle in retirement.

“While we always encourage people to look at their wider wealth portfolios (including housing equity and other savings) the current uncertain economic conditions and concerns over house-price deflation means that maintaining pension contributions is more important now than ever.”