One in ten people have cancelled their pension contributions in an effort to save money and avoid investing in the stock market, The Times has learnt.

A report from uSwitch.com — due out this week — will show that householders have decided to sacrifice saving for retirement in order to meet more pressing needs such as food and fuel bills.

The new findings are backed up by a study from the National Association of Pension Funds (NAPF) which represents pension schemes with combined assets of about £800 billion. The September survey found that one in ten employees with a company pension intend to cancel their policies scale back contributions or ask for a payment holiday.

Ros Altmann, an independent pensions expert and former adviser to the Government on pensions policy, said: “In any recession, people do cut back on their pension contributions. I’m not surprised it is happening now and I think this trend will continue and accelerate. Pensions are one of the easiest things to cut back on and it is inevitable that people will do this in times of economic uncertainty.”

While people who stop their pension contributions make short-term savings, financial experts cautioned that they were storing up trouble for the future.

Tom McPhail, head of pensions research at Hargreaves Lansdown, the independent financial adviser, said that he could understand understand why people were suspending their pension contributions, but added: “This is deferring a problem rather than solving it. When you come back to revisit it you will simply have to make bigger contributions to fill the gap you have left.”

Regular monthly saving in a pension meant that investors could take advantage of the recent market falls, Mr McPhail said. “I am very happy that the regular contributions I am making today, when share prices are low, will prove profitable in a few years’ time.”

However, many pension investors have been deterred by the experience of the recently retired. A large chunk of pension fund cash is invested in equities and a fall in share prices translates into a drop in retirement income.

For example, a 65-year-old man with a pension fund of £200,000 invested largely in shares at the beginning of July last year could have converted this into a pension of about £15,200. If the worker had waited until now to buy the annuity, the fund would have fallen in value to £164,000, producing a significantly smaller pension of roughly £12,700.

The Government said last week that it would consider calls led by David Cameron, the Conservative leader, for a suspension of pension rules to prevent people retiring now being disadvantaged by the global financial turmoil. The Conservatives want assistance for people who are required to buy an annuity either when they retire or at the age of 75.

Pension experts rejected the Tory proposals, saying that the current rules were fair. Peter Thompson, former chairman of the NAPF, said: “An annuity is an insurance against the risk that the money runs out before you do. I wouldn’t change the rules on this.”

Pensioner groups believe that the dwindling value of many private pension schemes means the Government should increase the basic state pension. Joe Harris, general secretary of the National Pensioners’ Convention, which has 1.5 million members, said “This month we are going to lobby Parliament to raise the basic state pension, in stages, from the present level of £90.70 to £150 a week.”

Jenny Willott, Liberal Democrat Work and Pensions spokeswoman, said: “It is understandable that when times are hard the first thing people sacrifice is saving for their retirement, as it seems a long way off.

“The Government and industry must do everything they can to maintain the public’s fragile confidence in pensions. No one can predict the long-term effect of the financial crisis on pensions but in the meantime people should make informed choices and not panic.”

The Department for Work and Pensions said: "We know people across the country have important decisions to make about their financial priorities, therefore it is also important that where someone is able to make some sort of provision for their retirement that they continue to do so.

"People have high expectations for later life which makes the case for continuing to save strong and helps to provide the retirement people want."

Case study

By Laura Whateley

Joe Comotto, 30, decided to cut back on his pension contributions six weeks ago because of worries that he was not going to be able to pay his household bills.

The research analyst from London was paying £400 a month to his standard life pension, but now gives up just £150 each month. He said: “I know it’s important to have a pension, that’s why I will keep it ticking over and in six months time try to increase my payments, but right now I’m more concerned about losing my job than thinking about retirement.

“Costs seem to be mounting, particularly fuel and food, and I'm struggling to meet them all.”

Mr Comotto’s biggest outgoings are rent and student loan repayments, which have risen with an increase in interest rates. He is keen to save for a more permanent home, but he holds little hope of finding an affordable mortgage. “At the age of 30 I should have a healthy looking pension and be able to afford my own home. After seeing what’s happened this week I don’t believe I’ll have either any time soon.”

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