Pausing pension contributions, even for a short period, could lead to missing out on thousands of pounds when the time comes to claim retirement pots, Standard Life has found.

The financial services firm said that as a result of the COVID-19 pandemic, inflation rises and increased interest rates, households have been under significant financial strain.

Standard Life added that while these unprecedented pressures may have made savings a challenge for many people, taking a short break from pension contributions can have a negative effect on retirement pots.

Research by the firm suggested that someone who began working with a salary of £25,000 per year in 2020 and paid the standard monthly auto-enrolment contributions (5% employee, 3% employer) from the age of 22 could amass a total retirement fund of £459,000 at the age of 66, not adjusted for inflation.

However, opting out of pension contributions for three years at the start of their career could result in a pension pot of £423,000, a reduction of £36,000. Standard Life also said that opting out of auto-enrolment and their workplace pension for a longer period could have an even bigger impact.

Standard Life said that a relatively small number of people who were auto-enrolled into a pension scheme chose to opt out of their workplace pension during the pandemic, but added that deciding to opt in will lead to a bigger pot in the future.

Managing director for workplace at Standard Life, Gail Izat, said: “Households have had a great deal to contend with over the past three years, with many having to cut back on spending and saving as a result. While cutting back on long-term saving might seem like the least harmful of a bunch of bad options, particularly earlier in life, it could result in people missing out on tens of thousands of pounds in retirement.

“If you’ve opted out in recent years, when circumstances allow remember your pension. Your future self may well thank you.”

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