Increasing numbers of young employees in the UK are choosing to stop or opt out of workplace pension schemes, citing difficulties caused by the cost of living, and fueling fears over their ability to save for retirement in the years ahead.
With living expenses rising, younger people are finding it more challenging to make pension contributions or are declining to join schemes, despite warnings from officials that these choices could put them at greater risk of having insufficient funds upon retirement.
Opt-out rates climbing for younger employees
Since workplace pension automatic enrollment was introduced, employees aged 22 or older earning more than £10,000 have been automatically entered into workplace pensions, resulting in strong participation overall. The Department for Work and Pensions (DWP) reports that about 22.6 million people—90% of those eligible—currently make workplace pension contributions, yet around 2.5 million eligible employees are not participating.
Among younger age groups, recent data shows a rise in opt-out rates. Figures from the DWP indicate that in the last quarter of 2023, 11.5% of new starters aged 22 to 29 opted out of workplace pension schemes, a sharp increase from 6.6% during the same period in 2020. Employees between 30 and 39 also saw a jump in opt-out rates, increasing from 7.4% to 12.7% over those three years.
Pensions Minister Torsten Bell highlighted concern over this trend, warning that the increase in young employees forgoing pension savings could mean future retirees are heading towards lower private pension incomes compared to current levels: “a rising number of young workers aren’t saving, and overall there is a danger tomorrow’s retirees are on track for lower private pension incomes than today’s”.
Younger workers caught between essentials and saving
Financial strain is pushing individuals like 26-year-old trainee GP Hassan Nassar in the West Midlands to reconsider their pension contributions. Up until September, Hassan was paying in approximately £430 monthly, which represented 10.7% of his gross earnings, into his NHS pension—a scheme with valuable employer contributions as well. But with increasing responsibilities—such as supporting a family member’s medical needs, saving for a deposit, rent payments, and repaying student loans—he has paused contributions for six to 12 months.
Hassan recognizes the trade-off, estimating that missing these contributions could cost him up to £10,000 in future retirement income by losing out on compound interest. He said the alternative—continuing the deductions—would place too great a strain on his present budget. The lack of flexible contribution options from the NHS further restricts his ability to adjust during periods of financial difficulty.
Other young adults are grappling with similar dilemmas. London-based Evie, 22, who works in events, has opted not to join her employer’s pension because her monthly rent is £800—leaving little left after factoring in commuting and basic necessities. Despite being worried about her long-term finances, she questions the practicality of making pension contributions while also attempting to save for a home or a car, saying, “How can I save for a house, how can I save for a car and afford my outgoings?”
Long-term implications and advice from professionals
Advisors like April Leeson from The Private Office encourage staying in workplace pension schemes due to the importance of employer contributions and the compounding effect on growth of savings. She explains that “£100 saved now, compounded at 4% a year over 30 years, is going to be worth a lot more than £100 saved in 15 to 20 years’ time.” Leeson urges workers to picture their future needs and prioritise pension savings whenever circumstances allow.
Yet, some cannot continue contributing. Kharlee, a teacher in South East London, stopped paying into her pension twice over the past five years due to financial hardship, and estimates her pension pot missed out on about £5,000 as a result. She’s now self-employed and, without a private pension, remains uneasy about her retirement outlook.
The majority of future retirees will receive a state pension, but since this provides only limited income, both financial experts and officials underscore the critical role of private workplace pensions in ensuring comfort in retirement. Ensuring that younger generations keep up regular contributions despite challenging economic conditions remains a pressing issue, to help avoid future income shortfalls.