ANNOUNCEMENT: UK Adviser is now PA Adviser. Read more.

High net worth Brits cut back on pension savings

Wealth manager says this is due to short-term mortgage pressure


High net worth individuals (HNWIs) are cutting their pension contributions or are planning to do so, by an average of more than £1,200 per month, according to the Saltus Wealth Index.

The research by wealth manager Saltus found that one-in-seven people with assets of more than £250,000 ($311,000, €285,000) have reduced their pension contributions within the past six months and that a further 14% plan to do so in the next six months.

The findings showed that the majority (84%) of HNWIs are already experiencing or expecting a hefty increase in their mortgage rates to put a strain on their cash flow.

The research also indicates that the vast majority of HNWIs may be underestimating the amount of pension they will need for a comfortable retirement. On average, they estimate that they will need a pension pot of £578,313 to provide a comfortable retirement, whereas Saltus says they are more likely to need almost £700,000 plus the full state pension, which 30% don’t think they will qualify for.

Mike Stimpson, partner at Saltus, said: “The fact that many HNWIs are cutting their contributions to help cover their mortgage repayments in the short term means their already too small pension pots could be at further risk.

“For a comfortable retirement, it is estimated that a single person needs £37,300 a year, and to achieve that you’d need a pension pot of £932,500. Even with the full state pension – which will be £10,600 in the financial year 2023/24– you’d still need almost £700,000 in your pension to make up the shortfall. So, most HNWIs are underestimating what they’ll need by more than £120,000.

“Pensions are one of the most phenomenal vehicles for growing your money. If you’re 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.”

Other HNWIs bump up their pensions

The Saltus Index also found that some HNWIs are boosting rather than cutting their pension savings, with nearly a fifth (18%) of HNWIs intending to increase their contributions.

“The lifetime allowance (LTA) changes announced in the Budget are welcome news for pension savers,” said Stimpson. “We are likely to see many people review their pension contributions as a result – even more so if they’ve given up employer contributions in the past due to their LTA position.

“This could be a boon for people who may have underestimated how much they need saved away for their retirement.

“Another benefit of the LTA changes is that you can also backdate pension contributions by up to three previous years, including the year you’re in, meaning pension holders that had already reached the LTA could potentially be looking to invest up to £180,000 into their pensions in the next few months.

“However, we would urge people to be mindful that these rules could change again in the future and to be sure to also consider other wrappers for maximising tax efficiency, to help pave the way for a comfortable retirement.”

Latest Stories