The number of savers choosing to opt out of their workplace pension scheme increased by 29% between March and July this year, new research from Penfold has shown.

This rise comes at a time when personal finances across the UK are becoming increasingly stretched.

According to data published by the Office for National Statistics (ONS), consumer prices index (CPI) inflation reached a 40-year high of 9.4% in July, adding pressure to households already facing rising bills, fuel and food costs.

However, Penfold has warned that the impact this could have on savers’ longer-term financial prospects is “significant”.

The The digital pensions platform’s analysis showed that if a 20-year-old contributing £200 per month to their pension pauses contributions for three years, the value of their final pension pot at retirement will fall by £28,074 – from £268,675 to £240,600 – more than a 10% decrease.

For a 25-year-old contributing the same amount, their pension pot would fall in value by £24,779 if they pause contributions for three years, while a 30-year-old would see their pot fall in value by £21,870 by the time they reach retirement age.

Penfold co-founder, Pete Hykin, commented: “Everyone understands that the pressures facing today’s savers are considerable. Many people are feeling the pinch on their incomes and savings, but it’s vital that those people who are financially able to pay into their pension continue to do so.

“The increasing number of opt-outs is a worrying trend, especially as the impact of pausing contributions, even for just a short period, can have a hugely detrimental impact on an individual’s finances in retirement, especially for those starting out in their career.

“Auto-enrolment providers and employers need to work together to educate and empower employees to make the right financial decisions during these turbulent economic times. If employees are unaware of the consequences of pausing contributions for a few years, it can feel like an easy decision to make. But this is not operating in a context where they have all the information to make an informed decision.”

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