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How to cope when your finances are squeezed

With households experiencing a financial squeeze due to the rising cost of living, many of us are worried about what’s ahead and how inflation will affect us financially in the future, as well as now. Here's some practical guidance to see you through.

Take control of your finances

When times are tough, it can feel overwhelming. But sacrificing paying into your pension - even temporarily - could have a real impact on your retirement in the future. Before you take decisions that are hard to reverse, here are some things to think about to help you take back control of your finances.

  • Pay down debts - look at your 'expensive' forms of debt, including personal loans, credit and store cards. Check if your credit rate has improved since you last opened a credit account as you might qualify for better rates.
  • Keep your mortgage under review - talk to your mortgage adviser who should be able to help you look at the best mortgage deals for your circumstances - for example some people opt for a fixed rate so they know exactly what their monthly payments will be. Also, if you can afford to overpay your mortgage, they'll help you explore if this is best, or if it's worth investing that spare money instead.
  • Renting - be bold when it comes to renewing your contract and negotiate. Responsible tenants are hard to come by and your landlord may be more accommodating than you think. It's worth a try.
  • Budget - it seems obvious, but many of us lose track of our daily expenses. Do some financial housekeeping, find out what and where you're spending and decide what's essential - and what's not.
  • Standing orders and subscriptions - over the years we set up standing orders and add subscriptions. These all add up. Perhaps it's time to check on these and see if you really need them.
  • Stay invested if you can - there are more reasons why it pays to stay invested below. History shows that the longer you're invested, the lower the chances are that you'll make a loss - although this isn't guaranteed.

Here's what you miss out on if you stop paying into your workplace pension

  • Your employer paying into your pension. Every time you contribute, your employer does too, which helps you save more in the long run.
  • Tax relief on your contributions. Your retirement savings get boosted by money that would otherwise go to HMRC.
  • Compound growth. Any money you make from investing your pension is then reinvested along with any additional contributions. All these things mean saving regularly, even if it’s small amounts, gives you the best chance of growing your pension. But do remember, any growth is not guaranteed, and the value of your pension investments can go down as well as up.

Want to make a big difference to your pension?

If you find - for whatever reason - that you have a little more money to invest in your pension, any extra contributions could make a big impact on your future savings. 

Take the example below - which is for illustrative purposes only. In reality, investment values can fall as well as rise rather than give a steady return. Charges would also apply and reduce any returns.

Nakhalar and Joe both pay 10% of their £30,000 a year salaries into a pension at the age of 25. They both receive 3% salary increases each year. Nakhalar pockets each pay rise. While Joe ups his contributions by 2% every five years. By the time 25 years have passed Joe's now paying 20% of his salary into his pension. This makes a £265,573 difference to his eventual pot.

Source: Fidelity International. For illustrative purposes only using an investment return of 5% each year.

When and how to ask for help

It can be difficult to ask for help if you’re struggling with your finances but asking for help is often the best way to stop your problems getting worse. If you’re concerned about debt, you have options available to you, like a payment plan or consolidation options.

Find a debt adviser near you by visiting the MoneyHelper website. If you have questions about your pension, you can get free and impartial advice using the Government’s Pension Wise service by calling 0800 011 3797.


Nearing retirement?

When you get closer to retirement, any sudden change to your pension value can be worrying. The impact of inflation can also be daunting. We’re here to help support you as you prepare for your retirement. Learn more about your options for retirement.

If you’ve built up several pension pots over the year, you might find it easier to manage them in one place. Find out more about pension transfers.

What to do when volatility strikes

Market rises and falls are a natural part of investing, but it can still feel unsettling if you see the value of your pension go down. Don't panic. History shows that markets do recover with time. Here are some practical pointers to ensure you don't make any decisions that you might regret later.

How to cope with volatility