A pension holiday will mean a lower annuity income

Stopping or reducing pension contributions can really make a difference to the pension annuity income received at retirement, and, unfortunately, too many people are cutting back on their pension contributions because of the current economic climate.

Leading insurer, Axa, has estimated that up to 1.5 million people are considering halting their pension contributions. As much as £35 billion could be lost if that number of pension holders opted for a two-year contribution holiday, it said. Apparently, those aged between 35 and 44 are most likely to cut savings.

Example of pension annuity shortfall: 28-year old man putting £300 a month into a stakeholder pension will have £59,700 less in his pension pot if he takes a two-year break. This equates to £1,047 less a year in annuity payouts; his retirement income.

The message is clear. Try not to cut your pension contributions. If you do, you will cut your retirement annuity income.