Money matters: Counting cost of pension 'holiday'

URGENT action is needed to prevent pension investors from reducing or stopping their contributions, Axa has claimed. The insurer has estimated that up to 1.5 million people are considering halting their pension contributions amid the economic slowdown. As much as £34.97 billion could be lost if that number of pension holders opted for a two-year contribution holiday, it said.

Those aged between 35 and 44 are most likely to cut savings, according to Axa, primarily to offset the increased cost of living or to clear debts. But a 35-year old taking a two-year break from contributing to a company pension would be £28,700 worse off as a result, while a 45-year old would have a shortfall of £16,900.

Those in stakeholder pensions stand to lose the most by taking a pension contribution holiday.

A 28-year old man putting £300 a month into a stakeholder pension will end up with £59,700 less in his pension pot if he takes a two-year break, equivalent to £1,047 less a year in annuity payouts.

Mortgage deals up on last year

THE best mortgage deals available to first-time buyers are more expensive than a year ago, despite significant base rate cuts. The best fixed rate deal is currently 0.75 per cent higher than this time last year, according to Edinburgh mortgage firm mform.co.uk.

The most competitive two-year fixed deal for borrowers with a deposit of 10 per cent is 6.44 per cent, against 5.69 per cent in November 2007. But the Bank of England base rate then was 5.75 per cent, nearly double the current rate.

The best three- and five-year deals available for borrowers with a 10 per cent deposit are 6.44 and 6.14 per cent respectively, up from 5.69 and 5.39 per cent last November.

The only good news for borrowers with no more than a 10 per cent deposit is that charges have fallen on the best deals to £599, down £400.

"It defies logic that the best fixed-rate deals for first-time buyers are currently more expensive than a year ago when base rates have been cut so dramatically," said Francis Ghiloni, marketing and business development director at mform.co.uk.