One in five young employees opt out of pension saving

More than 10 million workers have been automatically enrolled in a workplace pension since the start of auto-enrolment in 2012. But many young people are opting out to focus on more immediate saving priorities, according to new research.

It's not that young employees are going out and spending their pay as soon as it lands in their bank account: quite the opposite, in fact.

A study by money.co.uk found that Britons in Generation Z (those aged 18 to 24) are the biggest savers, but pensions are their lowest financial priority. Instead, they are focusing on saving for a home (32%), material goods (31%) or for a dream holiday (28%).

Worryingly, almost one in five (17%) of this group are opting out of all pension contributions.

Opt-out rates decline as savers get older, with 15% of Millennials (25 to 40 year olds) and 10% of Generation X (41 to 56 year olds) completely opting out of pension contributions.

A quarter (25%) of the Generation Z employees surveyed said they did not believe that saving up enough for a pension income of £22,500 per year to live a comfortable retirement was achievable, compared with 21% of Millennials and 26% of Generation Xers.

The survey also found that 23% Generation Zers and Millennials did not know how much they currently pay into their pension, rising to 26% for those in Generation X.

However, some younger employees are saving more than the statutory minimum in their workplace pension, with 23% of savers in Generation Z making additional contributions on top of auto-enrolment compared with 17% of Millennials and 25% of Generation X.

"Everyone's financial situation is different, but the earlier you start paying into a pension, the better result you'll get at retirement," explained money.co.uk personal finance editor, James Andrew.

"That's because if you don't start saving until you're older, you'll need to put far more away to catch up -- as the money has less time to grow.

"Once you pass the automatic enrolment earnings threshold (currently £10,000 a year or £192 a week) 5% of your pre-tax salary goes straight into your pension to be topped up by your employer, unless you actively opt out or your firm has a more generous scheme in place."

If you can afford to save that 5% (at least), it's usually well worth sticking with your auto-enrolled pension. Not only does your money have plenty of time to grow, you'll also get tax relief which means that putting £100 into your pension only costs you £80 if you're a basic-rate taxpayer. And your employer has to contribute at least 3% of your pay on top.

You're also less likely to miss the money compared with other methods of saving because it's taken out of your pay at the same time as your tax and National Insurance contributions -- before it even reaches your bank account.