Many employees have been told to work hard throughout their lives and then enjoy the fruits of their labour in retirement.
However, Gen Z workers are increasingly opting to bring home more money each month, even if it means facing a leaner pension.
An employer’s obligations change when employees opt out of pensions, so it is vital to know how to stay compliant.
What is making Gen Z put less aside for retirement?
Having endured the fallout of the financial crisis of 2008 and the pandemic while growing up, Gen Z have a notably different outlook on the world than previous generations.
There is less of a belief in an inevitably better future, leading to many making more impactful decisions to benefit the short term, even if the long term may suffer.
This can be seen with the tendency to job-hop that is more prevalent with younger workers and is also reflected in the withdrawal from pension contributions.
According to the Department for Work and Pensions, in Q3 2020/21, 6.6 per cent of 22 to 29-year-olds had opted out of a pension and this increased to 11.5 per cent by the same point in 2025/26.
Millennials may also be having second thoughts on pensions, as 12.7 per cent of those aged 30 to 39 had opted out of pension contributions in Q3 2025/26.
Should the cost-of-living crisis continue and the future remain uncertain, employers can expect to see more employees opting out of pension plans.
How do employers adjust when an employee opts out of a pension?
As soon as an employee has opted out of a pension, the employer contributions must also come to an end.
Depending on when an employee opts out, the next steps can play out quite differently.
If the employee never wanted a pension and has opted out within the first month of being enrolled, likely as soon as they crossed the auto-enrolment threshold, then it should be treated as though they were never part of the pension plan.
Any initial contribution should be refunded and a written record of their opt-out notice must be kept for a minimum of four years.
However, if the employee has already built a bit of a pension pot and then decides to opt out, they are not entitled to any refund.
The employee is at liberty to contact the pension provider and determine when they can access the funds, but that is not a matter for the employer to get involved in.
Instead, an employer should simply monitor the situation to ensure that neither employee nor employer contributions resume without the explicit permission of the employee.
It is worth noting that, whatever your view on pensions may be, you cannot attempt to influence your employee.
The facts of the pension should be presented neutrally with no indication that they are obliged to opt-in or out of the pension.
Similarly, engaging with a pension or opting out of one cannot be a factor in recruitment or promotion decisions.
While having different employees engaging with pensions in different ways may feel confusing, it is your duty to keep up with payroll records.
Our expert team can help with this, ensuring that your records are fully up to date, regardless of whether an employee is part of a pension or not.
Failing to comply with payroll requirements can ruin your reputation with employees and land you in trouble with HMRC, so getting expert support is advisable.
Get in touch with our team for full payroll and pension support.
