Covid crisis stops the young from saving into pensions, while older workers stick at it: Tips to keep YOUR retirement plan on track in a pandemic

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Two out of five young people have stopped or cut back on pension saving during the Covid 19 crisis, new research reveals.

Pay cuts, redundancy and worries over job security have forced workers of all ages to consider whether they can still afford to put money in their pension, even though this could damage their chances of a decent retirement.

But people aged 18-35 have reduced pension saving more than older generations during the coronavirus lockdown and economic downturn, according to research by Royal London carried out earlier this summer.

Job worries: Workers of all ages have been forced to consider whether they can still afford to put money in their pension

This could threaten the success of pension auto enrolment among the age group that stand to gain the most, as small sums saved when young will benefit from compound investment growth over an entire working life.

Under pension auto enrolment, workers contribute 4 per cent of their qualifying earnings - currently between £6,240 and £50,000 a year - employers put in 3 per cent, and the Government contributes 1 per cent in tax relief.

Opt-outs were low when these minimum amounts were increased in recent years, but Royal London's research suggests that many younger workers have reduced pension saving by choice or necessity during the pandemic.

Some 12 per cent of people aged 18-34 have stopped making contributions and 28 per cent have reduced them as a result of Covid-19 - a massive 40 per cent overall.

By comparison, 16 per cent of 35 to 54-year olds have either halted or cut pension contributions, and just 9 per cent of over-55s have done so, the pension firm found.

Those who stopped saving into a pension because of redundancy might be more likely to pick it up again later, because they will be auto enrolled when they find a new job, whereas people who simply cut back might not have the impetus to resume saving.

However, separate research has found that redundancy does have a drag effect on saving for old age, and some people who lost the habit of putting money into a pension after the financial crisis in 2008 failed to start again. 

If you are made redundant, you might be able to continue paying into your existing pension scheme, assuming this is allowed and you can afford it - read more here, and see below for tips on how to keep your pension on track. 

Meanwhile, if you are furloughed, payments into pensions based on 80 per cent of salary are protected. 

Who pays what? How pension contributions stack up under auto-enrolment schemes (Source: The Pensions Advisory Service)

Royal London found 79 per cent of people who stopped saving into a pension during the Covid-19 crisis plan to resume or increase their contributions again later.

Some 11 per cent said they had already done so and 37 per cent planned to within the next three months. The pension firm surveyed 2,000 people across the country in June, before the lockdown started to be lifted

Lorna Blyth, head of investment solutions at Royal London, says: 'The Covid pandemic has put a real strain on many people's finances and the research shows many are looking to reduce their outgoings by cutting or even stopping contributions.

'However, it is positive to see the vast majority of people have plans to resume or increase their pension contributions at some point, with some already having done so.

'It is vital that people follow through with their intentions to resume contributions as soon as they are able if they are to avoid long term damage to their retirement prospects.'

Are you worried about how to afford pension contributions?

Royal London offers the following tips to young pension savers.

1) If possible keep calm and keep contributing. Retirement may seem like a long way off but getting an early start on contributing to a pension will really make a difference to the amount of income you receive at retirement – your future self will thank you.

Even contributing small amounts will really build up over time.

2) You may have seen pension values fall over the past few months but it’s important not to panic. Pensions are long term investments and it’s important not to view them through the lens of short term market falls.

You have time to make up any losses if you continue to contribute. Taking long breaks or stopping contributing to a pension means your pension value is less likely to recover which could affect your future plans.

3) You are also missing out on employer contributions and tax relief. In addition to your own contribution your employer will also make a contribution to your pension. 

You will also receive a further boost from government in the form of tax relief.

For every £80 a basic rate taxpayer puts in their pension the government will top it up to £100. This makes a massive difference to the amount of money invested into your pension over time

4) If you do need to reduce or stop pension contributions then make sure you resume or increase your contribution as soon as you can.

Some people forget and what was initially meant to be a short term break turns into a longer term one which could impact the amount you end up with at retirement.

How to sort out your pension if you fear it's falling short

If you are worried about your pension and whether you will have enough, read a full 10-step guide to sorting it out here. 

* To get started, investigate your existing pensions. Broadly speaking, you need to ask schemes the following:

- The current fund value

- The current transfer value - because there might be a penalty to move

- Whether the pension is in a final salary or defined contribution scheme

- If there are any guarantees - for instance, a guaranteed annuity rate - and if you would lose them if you moved the fund

- The pension projection at retirement age.

* You can use a pension calculator to see if you have enough - find This is Money's here.

* You should add the forecast figures to what you anticipate getting in state pension, which is currently around £9,100 a year if you have a full National Insurance record. 

Get a state pension forecast here.

* If you are tempted to merge your old pensions, check out some tips on how to decide here.  

* If you have lost track of old pensions, the Government's free tracing service is here. 

Take care if you do an online search for the Pension Tracing Service as many companies using similar names will pop up in the results.

These will also offer to look for your pension, but try to charge or flog you other services, and could be fraudulent.