Dr. Hassan Nassar, a 26-year-old trainee GP in the West Midlands, was saving approximately £430 monthly into his NHS workplace pension until early September. He decided to stop contributing for six to twelve months due to financial strain from caring for a sick family member, saving for his first home, and covering rent and student loan repayments. Nassar estimates that opting out could cost him between £5,000 and £10,000 in future retirement income due to lost compound interest. He stated, "People will say, you're silly, look at what you'll be missing out in the future. But I need to look at what I'd be losing now if I didn't opt out."
Employees aged 22 or older earning over £10,000 are automatically enrolled in workplace pensions, with a typical contribution of around 5% from their pay, plus tax relief and employer contributions. However, many Gen Z and millennials are opting out due to cost-of-living pressures, raising concerns from the government about potential lower private pension incomes for future retirees.
Nassar contributed 10.7% of his gross earnings to his workplace pension, with the NHS making substantial contributions. However, the NHS does not allow staff to reduce their contributions during financial hardships. Despite this, Nassar remains optimistic about his retirement savings over his 30-40 year career and intends to rejoin the pension scheme as soon as possible.
According to the Department for Work and Pensions (DWP), approximately 22.6 million people, or 90% of those eligible for automatic enrolment pensions, are contributing, while about 2.5 million are not. Pensions Minister Torsten Bell noted a rising number of young workers are not saving, which could lead to lower private pension incomes for future retirees.
In the three months leading to December last year, 11.5% of eligible 22 to 29-year-olds who recently started jobs opted out of their pensions, an increase from 6.6% in the same period of 2020. For those aged 30 to 39, the rate rose from 7.4% to 12.7%.
Evie, a 22-year-old from Cornwall, opted out of her workplace pension at a London events company, citing difficulties in managing her expenses, including rent of £800, food, and travel. She acknowledges the importance of saving for retirement but prioritizes immediate financial needs.
April Leeson, from The Private Office, a chartered financial advice firm, advises against stopping pension contributions if possible, suggesting that reducing contributions is a viable option. She emphasizes the importance of employer contributions and the benefits of compound interest over time.
Kharlee, a 47-year-old teacher from South East London, has also opted out of her workplace pension twice in the past five years for financial reasons and worries about her retirement security. She hopes to secure her pension now that she is in a better financial position but is currently self-employed and not part of a private pension scheme.