Financial wellbeing during the cost-of-living crisis

Though inflation has reduced from the 41-year high of 11.1% it reached in October 2022, it still remains at a very high level. The continued cost of essentials like energy, food and petrol means that many households are still feeling the squeeze and looking for ways to economise and balance their budgets.

For some, this means reducing energy use, while others may need benefits for the first time. However, reports suggest that an increasing number of people are reducing the amount they pay into their pension – or stopping their contributions completely - to free up cash.

Of course, while this reduces your monthly costs in the short-term, it can impact your quality of life further down the line. So, before you make any decisions, it’s critical to understand what’s happening with the economy and the long-term impact of reducing pension savings, and to think about how your pension fits into your overall finances.

The long-term impacts of reducing pension savings

Against this backdrop, it’s understandable that people are putting aside less for retirement. After all, it’s hard to think about saving for the future when you’re struggling in the present. Despite this, it’s important to consider carefully before reducing or stopping contributions.

Remember that higher inflation means you’ll need more money to retire, not less. As prices rise, the money you have saved will buy you less. The bigger your pension savings pot, the more comfortable you will be.

You also benefit from compounding returns when you’re paying into a pension. This means that the further you are from retirement, the more chance your money has to grow. Just small amounts saved in your 20s and 30s can be worth a great deal by pension age. Pausing contributions typically means you need to save more as you get older, to make up the shortfall.

Finally, when you stop paying into your pension, you don’t just lose your own contributions. You’ll miss out on tax relief (essentially free money from the government) and, in workplace schemes, you’ll lose your employer’s contribution too.

For a more detailed look at the long-term impact of reducing your pension savings, click here.

Other ways to cut household costs

If cutting other costs now, or a little further down the line, could help you to ease the financial pressure without affecting your retirement, here are some tips to consider:

• Switch and save: Shopping around for phone, TV and internet deals may save you over £100 a year. Going sim-only is another method that could slash phone bills.
• Don’t auto-renew: Which? figures show switching on average saves £49 on car insurance and can save on home insurance as well. You may save more if you haven’t previously reviewed your policies or considered switching providers.
• Ditch the subscriptions: Go through your subscriptions carefully. Ditch anything you don’t use, or look for cheaper options.
• Check your benefits: Make sure you’re claiming everything you’re entitled to, from Universal Credit and child benefit to single person council tax reduction and help with energy bills. Use the Turn2Us calculator to check your entitlements.
• Don’t miss out on NI credits: Check whether you’re entitled to national insurance credits, which help build up the state pension. For instance, if you’re out of work due to caring responsibilities.
• Consider your retirement plans: If you’re approaching retirement, think carefully. Delaying it by a couple of years may make your money go much further. Consider whether going part-time and topping up your income with some of your pension savings is possible.

Join one of our financial wellbeing webinars

If you’re looking for more information and support, we provide live online seminars on a range of topics, including ‘Looking after your financial wellbeing.’ These sessions are delivered by an expert from our partner Origen Financial Services. They last about 1 hour and there’ll be the opportunity to ask any questions you may have.

This webinar explores what’s causing the increase in the cost of living and some practical steps you might be able to take to manage your money more effectively. It’s suitable for anyone who may be feeling the pinch from the increases in the cost of living and would like some practical tips and guidance.

To find out more and to book your place at the next session, click here.

Where to get support with rising living costs

Citizens Advice lists the different types of help available to you, including benefits, council welfare assistance and money towards day-to-day outgoings, here. You can also call your nearest Citizens Advice – just enter your postcode or town here for the relevant contact details.

StepChange shares ways to reduce the financial impact of the crisis on your finances, here. It also has an online debt advice tool, and you can contact them online or over the phone. Find out how here.

The government is helping households to cover some costs of living. You can find out what you may be entitled to, and when any payments are due, here.

The Samaritans are available to talk 24/7, by calling the free helpline on 116 123.

The NHS offers tips for dealing with financial stress, and other sources of mental health support, here.

Money Midlife MOT is provided through the Government’s Money Helper website, the Money Midlife MOT is a free tool to help you assess your situation and plan for the future. Simply answer a few questions about your finances and tool will provide you with a personalised report to help you identify actions to improve your finances, as well as linking to further guidance on how to improve your financial wellbeing from midlife through to retirement. The Money Midlife MOT can be access here.

Check if you're on track for retirement

You can get to know your pension by regularly logging into your Retirement Savings Account. Use it to see how much you and your employer are paying in, how much you’ve saved so far, and how your investments have performed. If you need to activate your account or reset your account password, you can send us a request using Contact TPT.