Covid-19 pressures could see people in their fifties £100,000 worse off at 75

• Those aged between 50-59 have reduced their retirement savings by £165 a month in response to Covid-19
• A 50-year-old opting out of a workplace pension could be nearly £100,000 worse off by the age of 75 if they never opted back in and continued working full time throughout
• Calculations show the value of saving back into the pension within 6 months, a year and three years

New calculations from Legal & General Retail Retirement show that workers in their fifties who have stopped saving into their pension in response to Covid-19 could be nearly £100,000 worse off by the age of 75 if they fail to start saving again and continued working full time until their retirement.

Legal & General initially ran research in May, which found that those between 50-59 had decreased their pension savings by £175 on average. The most recent findings reveal this is still the case with people saving £165 less a month for their retirement, in response to the pressure the pandemic has placed on their finances¹. 

For many people in the UK who contribute into their employers DC pension scheme², reductions of this size equate to opting out entirely³, with no idea on when they may be able to start making payments again.

The analysis shows the reality and the impact of freezing pension contributions in ones 50s on the eventual retirement pot at ages 65, 70 and 75 (table 1). Importantly, Legal & General has also calculated the value of re-introducing pension contributions as soon as possible, evidencing the benefitting of reinstating savings after 6 months, a year and 3 years (table 2).

Table 1 – Impact of opting out of pension contributions at the age of 50 for 6 months, 1 year, 3 years and the reality of never opting back in (£ figure represents total pension pot)

Table 2 – Impact of reinstating pension contributions in ones 50s after opting-out for 6 months, 1 year and 3 years (£ figure represents amount lost)

According to the analysis, a 50-year-old earning the average UK wage of £30,566 a year⁴, with a pension pot of £61,000⁵ would be nearly £100,000 (£98,680) worse off by the age of 75 if they never saved into their workplace pension again. By opting out of payments, they would be left with a pension pot over a third smaller at £170,617, compared to the £269,297 they would amass if they maintained their regular monthly contributions.  This assumes that the individual continues to work full time up until their retirement age.

However, by re-instating pension contributions in 3 years’ time, they would still be able to accumulate £256,559 by the time they are 75, meaning a loss of just £12,738. Opting back in quicker means losses are limited further; paying back into the scheme within a year means losses of £4,274 and a break of just 6 months means being £2,517 worse off in retirement.

A 50-year-old aiming to retire at the age of 70 would be retiring with £204,225 if they stopped contributions entirely, £65,331 less than if they had carried on making regular payments. A three-year break would see this reduced to losses of £10,370, a year £3,480 and a 6-month freeze would see the pension pot reduced by just £2,050.

Many in their fifties may have hoped to retire by the age of 65, but the calculations show how cutting contributions may make this difficult. A 50-year-old who continued to make payments would be left with a pot of £153,621 at 65, but halting payments now would see that reduced by over a quarter to £113,070. Were they able to start making contributions again within 3 years, they would amass a pot of £145,180, missing out on £8,441. Again, getting back to contributing as quickly as possible pays off, with a 1-year break depleting a fund by £2,832 and a 6-month gap by just £1,668.