Schemes seek to avoid swingeing opt-out costs

One construction firm, which will have to enroll 57,000 of its 60,000-strong workforce when it reaches its staging date next year, is planning to pay its staff’s contributions for them, for at least four years.

It will enroll all staff, regardless of eligibility and pay a 2% employer contribution, with no money coming from the employee, removing any incentive to opt out.

This will cost the company approximately £150 per employee, compared to an estimated £160 to deal with an assumed 20% opt-out – lower than the government’s average estimate of 35% – plus administration around checking eligibility.

This will remain the company’s policy until 2017, when the minimum overall sum going into auto-enrolled workers’ pots rises from 2% of salary to 5%.

Jamie Fiveash, customer solutions director at B&CE, which is providing the firm’s auto-enrolment solution with its People’s Pension master trust, said negotiating the balance between contribution and administration costs is “tricky”.

“Employers need to ensure they get the right balance, as well as ensure their pension is seen as an employee benefit rather than a compulsory regulatory requirement,” he added.

“For some groups of employees it could be cost neutral for the employer to pay the employees contribution to avoid some of the expensive administration requirements, as well as be seen as a real benefit by their employees.”

Legal & General managing director of workplace savings Tony Filbin warned opt out rates would differ “dramatically” across UK employers and warned generous schemes could still struggle to keep staff saving.

“It’s not just contributions but employee engagement,” he said. “And there are two schools of thought.

“Some people will look at the employer contributions and think ‘that’s a very generous scheme’, while others will look at what they’re paying and opt out because of it, even though the more it is, the more they’re likely to be getting from their employer.”