One in ten workers have paused pension contributions in the face of the Coronavirus pandemic and its impact on incomes and savings.

Of those who paused contributions the biggest reason (37%) was to use the money for essential spending.

Some 30% paused because of redundancy or furlough.

Analysis for Canada Life found that pausing contributions to a DC pension for three years could knock thousands of pounds off a pension pot unless contributions were increased significantly on re-joining. 

Canada Life looked at the implications three-year pension holidays would have for individuals at age 30, 40 and 50 at different earning and contribution levels. Pension ‘losses’ ranged from £45,000 to £71,000 for some pension savers (see below).

The analysis reveals that a 30 year old earning £30,000 could lose over £45,000 from the value of their pension by opting out of a pension for just three years. This would result in a drop in value of the pension at age 67 of over 9%, or £45,000 less at retirement.

Cost of a pension holiday

Source: Canada Life 

Canada Life points out that opting out of an automatic enrolment scheme will only see people re-enrolled 3 years later, unless they make an active choice to re-join in the meantime.

Andrew Tully, technical director at Canada Life, said: “While a three-year pension holiday may seem like a minor break in the context of a career spanning decades, our analysis shows that the long-term impact of that decision could be significant.

“It is worrying to see that 13% of respondents were actively considering a pension holiday. However, there are some ways to mitigate the potential impact. Our analysis shows that losses can be recovered at each stage of a working life as long as there is a plan in place to resume contributions as soon as practicable.”

• Opinium surveyed more than 2,000 UK adults from 21-25 August.