How much can opting out of your workplace pension actually cost you? Britons risk pushing cost of living crisis into retirement

However, pension experts have warned that opting out for even a year can have severe consequences on one’s retirement.

Peter Jackson, chief data officer at Outra, said he understands the pressures of today’s financial economy but warned against opting out of a pension scheme.

He said: "If you flip out of your pension you are pushing a cost-of-living crisis into your retirement.

“You are not going to have a sizeable pension pot available to you when you come to retire.”

Pausing pension contributions even for a short time can have consequences, the life assurance and pensions company Standard Life has found.

Its analysis suggests a person who began working on a salary of £25,000 a year in 2020 and paid the standard monthly auto-enrolment contributions (five per cent employee and three per cent employer monthly contributions) from the age of 22 could amass a total retirement pot of £459,000.

Choosing to opt out for three years would knock off £36,000 from someone’s retirement pot. Those taking a six year break could lose £71,000.

Mr Jackson said: "With a lot of employers, if you increase your contributions a lot of them will match it up to a certain percentage so it is kind of like free money.”

By stopping contributions, employees lose out on their tax relief as the amount becomes subject to income tax.

It also means their employer's contribution stops too. In other words, the £1 for £1 matching stops.

A third of UK workers have looked into reducing or pausing their pension contributions in the past two years, as the cost-of-living crisis continues to bite, Royal London research has revealed.

The survey found that, for those aged 18-34, this rose to 49 per cent. The main two reasons behind this move were the cost of living (55 per cent) and rising mortgage costs (15 per cent).

Royal London argued this may result in a short-term boost for home pay, but can also “have a dramatic impact on people’s future wealth”.

Even if workers feel the need to opt out, getting a pay rise could be a good opportunity to opt back in.

With the average wage rising by 5.6 per cent this year, the average full-time UK worker on around £35,000 enjoyed a healthy pay rise of nearly £2,000, according to data from the Office for National Statistics (ONS).

Those who received a pay rise should consider opting back into their workplace pensions, or increasing their contributions in line with inflation to make sure their money is making money in real terms, experts suggest.

Clare Moffat, pensions and legal expert at Royal London, explained pausing pension contributions "might be something people have to do" as bills rise but they should take any pay rise as an opportunity to opt back in.

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She said: "A lot of younger people think they are not going to get any state pension or they are not going to see state pension until they are about 70 but then they still want to retire when they are about 60.

"It's up to employers to help a bit as well. Remind people when they get a pay rise that this might be a good time if staff have opted out to opt back in."

When it came to knowing how much to contribute, she said, "it's better to think how much money you would need in retirement".

The Pensions and Lifetime Savings Association’s latest figures show that retirees need £43,100 per year for a 'comfortable' standard of living, and £31,300 for a 'moderate' lifestyle.

A 'comfortable' retirement includes £500 per year for home improvements, £175 per week to spend on food, £1,500 per year in clothing costs, an annual two-week holiday in Europe, and £50 per birthday or Christmas present.

The headline income figures do not include tax, housing or care costs.