Farmers urged to update pension contributions to combat inflation

Farmers and the self-employed are being urged by NFU Mutual to update their pension contributions following two years of high inflation.

Many farmers use pensions as an alternative income stream in later life to reduce the impact of multiple generations taking income from the farm – and the number doing so is growing.

Research published by the rural insurer shows that a big majority (77%) of farmers now have pensions, up from 66% four years ago.

However, inflation is eroding the buying power of money. According to the Bank of England, goods and services costing £100 five years ago would cost nearly £125 today.

NFU Mutual said farmers and the self-employed may not naturally increase their pension contributions, leaving them vulnerable to a shortfall in later life.

However, the rural insurer said that with inflation predicted to continue falling this year, a small increase could have a positive long-term impact.

Martin Ansell, pension expert at NFU Mutual, said it was crucial that farmers reviewed their pension contributions during inflationary periods.

“Employees who sacrifice a percentage of their pay into a pension will automatically have their pension contributions increased with pay rises," he said.

“But farmers and the self-employed need to change their contributions manually by telling their pension provider or financial adviser.

“If you have always put a certain amount into a pension, consider increasing it by a small percentage in order to help combat the impact of inflation.

“It can be a positive step over the long-term, and outweigh the temporary effects of high inflation.”

NFU Mutual research shows that farmers are more likely to put money into a pension on an ad hoc basis, rather than with regular monthly contributions, with 72% of farmers saying they invest ad hoc.

Mr Ansell said that farm profits can be cyclical and sometimes irregular: "Our research shows that farmers are more likely than others to make ad hoc payments into their pensions when it suits them instead of monthly contributions.

“While we know this approach will work for the finances of many farms, it’s important those ad hoc payments aren’t forgotten about or farmers could risk a financial shortfall in later life.”