How to avoid pension regret

Mounting pressures from rising prices mean people are more likely to dip into savings, increasing the need for extra cash wherever they can find it.

The latest HL Opinium survey* reveals 49% of people have spent some of their savings over the past year to pay for unexpected expenses. The problem is these expenses are much higher than we’ve seen before. And it’s becoming increasingly hard to have any leftover cash when the end of the month rolls around.

With people struggling to stretch their pay to the end of the month, it’s no surprise that paying into a pension can fall down the list of priorities.

Business software provider, Access People, analysed Google search data over the past year. The results showed a 36% rise in searches on how to opt out of a pension, with Cardiff topping the list with a 133% increase in searches.

You can’t normally access your pension until you’re 55 (57 from 2028), so it may seem logical to stop contributions now to claw back some cash to cover immediate shortfalls. But people may not realise the impact this could create on later life, particularly those aged 18-34 who are further away from retirement.

This short-term relief can transform into long-term regret, with more than one in five people regretting not getting to grips with retirement planning earlier. This rises to over one in four for those aged 35-54. And not only do people wish they’d prioritised their pension earlier, around one fifth say they wish they’d actually boosted contributions. This may be unrealistic for those looking to opt out, but the importance of keeping the pension message strong among employees is clear.

With 68% of employees trusting their employer to provide guidance on their finances, you can, as an employer, provide financial education about key topics like pensions, budgeting and financial resilience.

Not only will financial education help to prevent pension regret, it’ll also support employees’ wider financial confidence. As 58% of private sector workers under 34 take time off due to financial worries, potentially costing UK employers £2.5bn a year, having financial wellbeing at the top of your agenda will help to create a more content and financially confident workforce.

But no matter how much retirement saving is championed, some people might have no choice but to opt out of their workplace pension.

It’s understandable for employees to opt out as a last resort to make ends meet. But it would be good for those who’ve opted out to set a diary reminder every month to review their decision. They’ll be more likely to opt back in as soon as things get better. Without a reminder, people are likely to forget about their pension amongst the busyness of day-to-day life. Employees who’ve opted out also won’t be automatically re-enrolled into their pension for three years. In that time, they’ll have missed out on important employer contributions, tax relief and potential investment growth to help boost their retirement income.

The importance of pension contributions seems like a hard message to push when people are struggling to navigate the cost-of-living crisis. But with the right support, you can give employees the best chance at understanding their pension and mitigating, or even avoiding all together, pension regret.

*(May 2023, 2000 respondents)