The perfect storm of our exit from the EU, the global pandemic, and war in Eastern Europe has provided us with a significant inflationary problem – impacting the money that the average person has to spend to maintain their standard of living. There have been a number of sources considering what the impact will be on people’s real incomes as a result of high inflation, with some sources suggesting a fall of 4% or more by 2023[1].
People are of course keen to maintain their standard of living and are looking for ways to do this. Canada Life undertook a survey, and they found that around 5% of UK adults had stopped their monthly company pension contributions because of the impact of those cost-of-living rises. It doesn’t stop there though – that same study notes that a further 6% are considering pausing contributions, and a further 9% may do so in the future.[2] One important point to note is that those on fixed incomes can find these periods particularly challenging – and one of these groups is people who are retired. This is a real-world example, highlighting just how important saving a solid plan for retirement is, for all. Sadly, the Bank of England have stated that they expect the rate of inflation to go even higher towards the end of the year (due to the energy price cap increasing in October) – so we could see that 15% identified in the study move towards the point of pausing their contributions.
Is this a bad thing? It very much depends on that individual’s personal situation – for some, if it is a choice between essentials for living now and saving for retirement, a pause could be sensible – if it is a pause rather than ceasing altogether. For others, a reminder (especially if contributing by salary exchange) of the total amount that they could be giving up on, for a relatively small change in take-home pay could help them reconsider pausing contributions and look elsewhere for ways to cope with this period. Restarting anything after a period of time away from that good habit can be difficult – and it could result in a member delaying their exit from the workforce due to their retirement savings being impacted by any periods of reduced contributions or a pause.
If you would like to discuss how we can help your employees during this period, be it through general financial education, cost of living financial education, or a reminder on the effectiveness of salary exchange, please let us know.
If you do not already operate salary exchange, this could be a great way to help employees make savings in a difficult time – and would certainly be well received
