Rising costs force one in 10 high net worth individuals to cut pension contributions, putting retirement plans at risk

• Nine in 10 HNWIs say the current higher interest rate environment – and the continuing rise in the cost of living – has impacted their lifestyle and financial planning
• One in six have reduced personal spending while one in ten have been forced to reduce pension contributions
• Only 3% of respondents are making use of the full pensions allowance of £60,000 per year
• On average, respondents are underestimating the size of the pension pot they will need by more than £320,000

One in 10 high net worth individuals (HNWIs) have cut their pension contributions over the past year in order to balance pressures on their day-to-day finances, according to the latest findings from UK wealth management firm Saltus.

As part of its 6^th Saltus Wealth Index Report, Saltus surveyed 2,000 people with assets of £250,000 or more, and the vast majority (93%) said that the current economic environment has negatively impacted their lifestyle and financial planning.

The most common changes HNWIs have made in response to rising costs is to cut down on their personal spending (16%), including on luxury items (17%), holidays (16%) and entertainment (16%). But worryingly, more than one in ten (11%) have reduced their pension contributions.

And according to the research, respondents are already falling short when it comes to pensions, with the vast majority underestimating what they will need in their pension for a comfortable retirement.

On average, HNWIs think they’ll need a pension pot of £470k (£471,198) to give them a comfortable retirement, but in reality, they are likely to need retirement savings of almost £800,000 (£789,950) – plus the full state pension.

According to Saltus’ data, the average value of respondents’ pension pots is currently just under £425k (£424,259), so well short of where they need to be. Therefore, most need to be making use of the full £60,000 allowance (equivalent of £5,000 a month) if they are going to fill that gap; but the research shows that just 3% of HNWIs are doing so.

The average amount contributed is £2,639 per month/£31,664 per year– but more than one in five (22%) are saving less than £1,700 a month into their pension.

Mike Stimpson, Partner at Saltus, said: “The fact that many HNWIs are cutting their contributions to help cover rising costs in the short-term means that they are making it tougher to establish a pension pot that will fund a comfortable retirement. 

“For a comfortable retirement, it is estimated that a single person needs £43,100 a year¹, and to achieve that you’d need a pension pot of £1,077,500. Even with the full state pension – currently £11,502 a year – you’d still need almost £800,000² in your pension to make up the shortfall. So, most high net worth individuals are underestimating what they’ll need by almost £320k.

“Pensions are one of the most phenomenal vehicles for growing your money. If you are a higher-rate taxpayer, the potential tax saving is equivalent to a 72% return just by putting the money into a pension. So, cutting contributions should be a last resort.”