Although you have the option to opt out of your workplace pension, it’s a really good idea to stay and pay into it. Because your employer and the government both pay into your workplace pension, you essentially get ‘free money’ that is invested for your future.
Over the years that you’re working, that money will be invested by your pension provider in the stock market alongside a number of other assets such as property and bonds. Although there can be fluctuations in the investment, over a long period of time (10 years+), investments usually grow more than cash in the bank. To give you a comparison, £1000 held in cash from 1926 to 2018, would be worth £85,000*. However, if invested in a mixture of shares and loans (as pensions usually are), it would be worth £1.9 million.**
Putting your money into your pension is a great way to grow it so you have more to live on when you retire. For most people, the State Pension (£203.85/week as of April 2023) is unlikely to be enough to pay for the lifestyle they want. That’s why it’s a good idea to have extra savings on top.
'* Source: Timeline 2019 chart: Cash return is derived from UK T Bills, GFD UK Total Returns Bills Index
'**Source: Timeline 2019 chart: Return derived from a Global Balanced Portfolio comprising of 50% global equities and 50% global bonds