As living costs continue to climb and household budgets get tighter, many Brits are now making a difficult sacrifice—cutting back on their pension contributions.
It’s a decision no one wants to make, but for many, it’s becoming the only option in the face of rising prices and heavier taxes.
And with Labour’s new economic policies now in full swing, some experts are warning that we might be walking straight into a pension poverty crisis.
Pensions Plunge as Tax Hikes Bite
According to fresh figures from the House Money Index, the average amount people are putting aside for retirement has dropped significantly—by a staggering 20% in just six months.
Back in December, monthly pension contributions averaged £65.10. By April, they had slipped to £59.10. Now, they’re sitting at just £53.40.
That’s six months in a row of steady decline—the first time that’s happened in two years.
So what’s behind this sudden downturn? Many point the finger at Chancellor Rachel Reeves and her controversial tax reforms, including the national insurance hike that’s left households with even less money to save.
High Inflation Is Squeezing the Middle
At the same time pensions are falling, household spending has shot up.
Monthly outgoings now average £1,564—a 12% increase since December.
That means people are spending about £52.14 every single day just to cover the basics.
In December, that figure was £46.40.
Kara Gammell, a personal finance expert with MoneySuperMarket, says it’s clear people are making tough decisions just to keep up with rising expenses.
“People are cutting back on both private and workplace pensions,” she said, “likely as a way to manage their already-stretched household budgets.”
Critics Say Labour’s Plan Is Hurting More Than Helping
The political backlash has been swift. Helen Whately, the Conservative shadow pensions secretary, warned that the country is heading toward a “pension poverty time bomb” because of Labour’s financial decisions.
“Tax hikes and rising bills are forcing people into impossible choices,” she said.
“We won’t see the full consequences of these policies for years, but the warning signs are here now.”
John O’Connell, who heads the TaxPayers’ Alliance, added that many families are now being forced to tap into retirement savings just to get by, calling the tax and cost-of-living burden “sky-high.”
Inflation Spikes and Reeves’ ‘Job Tax’ Under Fire
The Office for National Statistics recently reported that inflation jumped to 3.6% in June—higher than many experts had predicted and the steepest climb since January 2024.
The culprit? Many critics are blaming Reeves’ so-called “job tax,” which includes the national insurance increases and other Labour tax policies.
This spike in inflation means that goods and services are getting more expensive, stretching family finances even further and making it harder to plan for the future.
Government Vows to Tackle the Problem with Pension Commission Revival
In response to growing concerns, Work and Pensions Secretary Liz Kendall has promised action.
She says the Government is bringing back the Pensions Commission, originally set up by New Labour, to tackle some of the biggest barriers stopping people from saving properly.
“Everyone deserves to feel secure in retirement,” she said.
“But that’s not the reality for many—especially for those on lower incomes or who are self-employed.
We need to make saving easier and more accessible for everyone.”
The hope is that reviving the commission will help rebuild confidence and encourage more people to start planning again for a stable retirement.