Pension savings hit as credit crunch continues

Hard-pressed consumers are being forced to ditch retirement savings to meet the soaring cost of living, a survey indicated.

A tenth of people saving for their retirement - almost 2.4 million Britons - say they will have to stop or reduce contributions in the next 12 months due to the worsening economic outlook.

Those aged 25 to 34, female and living in London are the most likely to take pension payment breaks, according to the poll of 2,057 adults for stockbroker Brewin Dolphin.

The survey findings come as the fallout from the credit crunch - the end of easy credit and higher mortgage costs - coupled with a depressed housing market and higher fuel prices are putting increasing pressure on households' purse strings.

Historically, a fifth of pension savers have stopped, paused or reduced payments at some point in their working lives for an average of almost two years. Some 13 per cent have taken a break of five years or more, Brewin Dophin said.

Director of corporate affairs Charlotte Black said: "Given tighter credit conditions, it seems likely that pension payment breaks will become increasingly prevalent as the immediate pressures of servicing mortgages and dealing with credit card debts take their toll.

"This will result in a further depletion of pension pots that have already suffered by the government's decision in 1997 to remove tax credits on dividends in pension funds."

She warned that even the "shortest" payment break could have "serious consequences" for income in retirement.

A 32-year-old man aiming to retire at 58 and saving £400 per month into his pension fund could expect to have a total pension pot of £791,760 in 2034. A payment break of just a year would save him £4,800 now, but could cut the final pension pot to £756,201 - an eventual loss of £35,559.

More than a third of investors and a quarter of the general public believe a recession is the biggest threat to their financial well-being, a survey showed last week.