Worried homeowners to cut back on pensions

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Homeowners who fear they will not be able to meet higher mortgage payments are planning to cut their pension contributions, a report shows.

More than 2million intend to stop, pause or reduce their contributions over the next year because of the economic outlook.

But they are putting their long-term financial future at risk because this will leave them with less money in their pension pot, according to research commissioned by independent financial experts Brewin Dolphin.

The study warns that 2.4million pension savers - or one in ten of the total - will stop, pause or cut their contributions, on average for around two years.

Those most likely to do so, some 800,000, are in the 25-34 age range.

Research shows that historically 20 per cent of pension savers stop, pause or reduce payments at some point in their working life.

But Brewin Dolphin says it is alarming that so many intend to make changes in the next year. It believes this is a reaction to the current economic turmoil.

Women were more likely to take such action than men. The report said pension savers in London (12 per cent) were the most likely to alter their contributions, followed by the South-East and East Anglia (11 per cent).

The average length of time for a "pension break" was 22 months, although 13 per cent did so for more than five years.

Savers in Scotland would pause their contribution for 11 months on average, compared to 27 months for those in the South-East and East Anglia.

The findings support research by the Financial Services Authority which found that 20 per cent of mortgage holders were worried about meeting their repayments in the next 12 months.

Charlotte Black, of Brewin Dolphin, said: "Even the shortest payment break could have serious consequences for the income a pensioner has in retirement."

The firm gave the example of a 32-year-old man aiming to retire at 58 and saving £400 a month into his pension fund, which is currently valued at £40,500.

He could expect a £791,760 pension pot in 2034.

However, if he stops paying into his pension for a year, the pot would drop to £756,201 - a saving of £4,800 today, but an eventual loss of £35,559.