'It could cost me £10k but I need the money now': Why Gen Z are opting out of pensions

Until early September, Hassan Nassar, 26, was saving around £430 every month into his NHS workplace pension.

But the trainee GP, who works in the West Midlands, says he was "really cash strapped" and decided to stop putting money aside for around "six to 12 months".

He needs the money to help take care of a sick family member, save for his first home and cover rent and student loan repayments.

But he's aware there is a cost to opting out, estimating he could lose between "£5,000 and £10,000" in future retirement income due to the decades of compound interest he will miss out on by not saving now.

"People will say, you're silly, look at what you'll be missing out in the future," he tells the BBC. "But I need to look at what I'd be losing now if I didn't opt out."

All employees will be automatically enrolled in a workplace pension if they are aged 22 or above and earn over £10,000, although there are exceptions.

A percentage is taken directly from the worker's pay - usually around 5% - with tax relief added on top, and the employer must also pay a minimum contribution on top.

But a growing number of Gen Z and millennials are opting out of these schemes due to cost-of-living pressures and the government has warned they could be on track for lower private pension incomes than people retiring today.

That is a problem, because while most people in the UK will eventually get a state pension, it only provides a minimum level of retirement income and many will rely on a private pension to supplement it.

Hassan says he was paying 10.7% of his gross earnings each month into his workplace pension, while the NHS contributed a substantial amount on top.

But unlike some employers, the NHS doesn't allow staff to reduce their contributions when times are hard.

Overall, however, he is confident he will have enough to retire on at the end of his "30-40" year career and is determined to opt back in to his pension as soon as he can.

According to the Department for Work and Pensions (DWP), around 22.6 million people, or 90% of those who are eligible for "automatic enrolment" pensions, are paying into one, while about 2.5 million are not.

However, Pensions Minister Torsten Bell told the BBC that "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".

According to DWP data:

• In the three months to December last year, 11.5% of eligible 22 to 29-year-olds who recently started a job opted out of their pensions. That's up from 6.6% in the same period of 2020.
• For 30 to 39-year-olds it's gone from 7.4% to 12.7%.

Evie, 22, from Cornwall, says she opted out of entering the workplace pension at the London events company she works for.

A recent drama school graduate, she says she would have struggled to cover her outgoings, including food, travel and the £800 she pays in rent.

Evie is conscious about missing out on saving for retirement, but there are other things she needs money for that make it impractical right now.

"How can I save for a house, how can I save for a car and afford my outgoings? I don't want to just work day in, day out to live, I want to work to have a life."

April Leeson, from The Private Office, a chartered financial advice firm, says she would always advise people to not stop paying into their pensions if they can help it, even if that means reducing their contributions, which many employers allow you to do.

This is partly because of the free employer contributions they will miss out on but also the lost compound interest.

"The current minimum pension age is 57, so any money you save in your 20s will have at least 30 years to compound and grow.

"£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."

She also urges younger people to think ahead. "You really need to think of your future self and what that person will need to retire comfortably."

Kharlee, 47, a teacher from South East London, can certainly relate to this. She stopped her contributions to a workplace pension twice over the last five years for financial reasons.

And she thinks she missed out on saving about £5,000 into her pension pot.

She's in a better place financially now, but recently became self-employed and is no longer part of a private pension scheme, something she hopes to change.

"I would like to feel my pension is secure, and I don't feel like that. I worry I'm not going to be able to live comfortably at the age of retirement."