Taking a break from making pension contributions can cost much more than the savings by the time a saver retires, argues a new study.
The analysis looked at the impact on the value of a pension fund at state pension age for someone who took a contribution holiday from their workplace pension during their 20s.
Just a 12 month break reduced a pension fund by £7,300 by retirement.
Longer breaks had a more devasting effect.
Missing contributions for five years slashed £42,100 from the value of a retirement pot, while a 10 year payment holiday saw a massive £91,600 pension fund reduction.
The company warned that workers had a lot to lose from not making pension payments, as their employers were likely to stop paying their share into the pot.
This free money plus an annual 1% top-up by the government saw a savings loss of thousands of pounds.
The firm pointed out that the minimum missing contribution would save someone £622 a year, but lead to a loss of £7,300 savings later in life.
The maximum fund was calculated as £398,900 if the saver made all their contributions during their working life.
This reduced to £391,600 with a one-year pension holiday, £356,800 after a five-year break and down to £307,300 after 10 years.
Later life regrets
The study looked at workers saving in auto-enrolled workplace pensions.
Steven Cameron, pensions director at Aegon, said: “The recent rise in minimum contribution levels for auto-enrolment may mean some employees are contemplating taking a break from contributing into their workplace pension scheme. The temptation may be particularly strong for younger workers, many of which will be paying off student debt and saving for a house deposit. Competing demands for money short-term may mean saving for retirement decades into the future is pushed to the bottom of their financial concerns.
“However, opting out of your workplace pension should be avoided wherever possible. While you may increase your take home pay, you’re very likely to lose out on a valuable employer pension contribution.
“Those considering opting out or taking a break should look to see if there are other areas of their lives where they can cut back even if their pension may not feel like a priority. Having gaps in your pension saving history may be something you’ll regret later in life.”