I got to do my podcast with Nico Aspinall and Darren Philp yesterday and one of the pension news stories we discussed was a report from Aon that savers into Aon managed pension schemes were saving less or even stopping contributions.

Turning on my twitter feed later in the day , I read the details from Jo Cumbo

Aon, a pension consultancy, had received 132 responses from DC schemes to a survey on member activity.

A fifth, or 20 per cent of the 132 schemes, reported members stopping or reducing contributions in recent months. pic.twitter.com/JgPpMKUvx3

— Josephine Cumbo (@JosephineCumbo) February 8, 2023

The FT’s pension correspondent found further cause for concern for Aon

It wasn’t just #pension savers feeling the squeeze. The Aon survey found around 1 in 6 schemes reporting an increase in older members dipping into their #pension pots, in a sign of growing financial strain. pic.twitter.com/IeZWO7NlBI

— Josephine Cumbo (@JosephineCumbo) February 8, 2023

When it comes to budgeting, those who spend what comes in have a problem when what comes in (income) drops below what goes out (the payment of household bills including energy, mortgage, rent  and shopping).

Very few people have had a pay rise in line with inflation and most people have seen their outgoings rise faster than what comes in, especially those who are still paying mortgages and don’t have their rent paid for them. That’s most of the working population, most of the people who choose to make pension contributions.

I use the word “choose” with my tongue in cheek. Most of us have no idea how much of the money we get in our pay and how much we pay out in bills, is impacted by pension costs we pay anyway.

We pay income taxes to support the NHS which is primarily a service for pensioners, the worker supports the sick pensioner. Our income tax also pays public sector pensioners on a pay as you go basis.

We pay national insurance to get credits for the state pension , a diminishing number or workers support an increasing number of state pensioners

We pay council tax to meet the pensions of those in the Local Government Pension Scheme.

And our employers are required to make deficit contributions to DB pensions and we don’t get paid so much because of that. We also don’t get paid the levy our employer might be paying to support the PPF.

In short, most of us are paying more for other people’s pension than we are for ours.

The amount we pay into our own pension (if we are in the private sector) a DC workplace pension, is discretionary spend. Unlike all the other payments we have to make or have to see made on our behalf, what we pay into our workplace pension is our business. What we take out of our pension pot is our business. Frankly it’s not Aon’s business other than it’s an interesting story to discuss in a pod.

Those who would have our workplace pensions switched from discretionary to compulsory participation have missed the message of the last ten years which is that people like to have choice – even if they don’t exercise their rights to choose. When people choose to leave a pension – as sadly is happening with many nurses who are reported not to be able to afford to stay in the NHS pension, we really should be worried. Those young years of service cannot be made up later in life (other than at great expense).

Unless you are low paid and in a net-pay pension when John doesn’t get the £10

If we cared enough, we would not be making low paid savers over pay their contributions by 25%.  I fear that many people in the pension industry are thinking more of their own pockets than those who they serve. People behave more rationally than we would like and many prefer solvency to compliance with the received wisdom of “save through it”.

So when people choose not to maintain discretionary spend into workplace pensions or raid their pensions to pay household bills we shouldn’t be surprised or even that worried.

If you opt out of  a workplace pension , you are opted in again within three years through a process of re-enrolment. If you change jobs in the meantime , you will be enrolled into your next workplace pension. If you choose to raid your pension, you may be restricted by the Money Purchase Annual Allowance to replenishing your pot as you would like but in truth – “recycling” of monies that come out and then go back into workplace pensions post 55 , is very rare. Most people who raid their pensions do so to meet bills, not to evade tax.

We want to know what is happening to savings rates, that’s a big-picture policy thing. But we must accept that when times are tough (we don’t call what we’re in a cost of living crisis for nothing) people will seek alternative ways to balance the books. Diverting pension contributions to pay bills is not ideal – we need to save more not less for retirement. But it is better to have a bad pension contribution record than a bad credit rating.