Why we must fight to keep AE opt-outs low

So far, this prediction has not proved to be right.

Although auto enrolment is still very much in its infancy, experience shared by companies who have already staged – such as John Lewis, Asda and McDonald's – indicate opt-out rates of less then 10 per cent are the norm. Opt-ins are occurring where good education has been provided as part of the process. 

Our own experience is consistent with these results, with opt-out rates averaging closer to 6 per cent so far, and opt-in levels of more than 4 per cent among educated workforces.

These statistics make reassuring reading – but at the moment, only the largest companies have staged, and the behaviour of this portion of the workforce may not necessarily reflect wider behaviour.

Large employers typically have considerable HR resources and well-established employee engagement tools and strategies, which they can deploy to communicate auto-enrolment.

Increased non-participation

As we move into stages two and three of auto-enrolment, it is probable that opt-outs will increase.

Small and mid-sized companies will not have the communications resources of larger firms, and as a result a greater proportion of people might opt out simply because the benefits of remaining opted in are not communicated clearly or emphatically enough.

As time goes on and contributions increase, employees are more likely to notice the deductions and feel the effects.

It could be at this point that they decide to opt out. Ensuring ongoing communication is in place to reinforce the importance of pension saving and the benefits of remaining opted in will be imperative in keeping opt-out levels low.

Also, for those that opted out initially, receiving a regular communication reminding them about the pension scheme might prompt them to opt back in before the three-year deadline, at which time they will be automatically re-enrolled.

The reality is that for some, the current economic climate might have made pension saving a challenge.

Research we recently conducted revealed one in four people have stopped saving, in light of the recession – but as time goes on and the economy hopefully improves, this squeeze should ease. As a result, it is important to continue to remind those who have opted out that the door remains open.

Keeping members saving

Over the long term, scheme members will need to be continually reassured that their pension is delivering value for money and that their provider can be trusted.

If their hard-earned pension savings are being eaten up by high charges and their fund performance is volatile, trust will quickly ebb away and the motivation to stay enrolled will be sorely tested.

Employers therefore have a responsibility to ensure the scheme they select remains fit for purpose and continues to deliver good value for money for their employees.

There is still a long road to travel with auto-enrolment, and it is definitely too soon to say that the current low opt-out rates mean it has been a success.

But early indications are very encouraging, and if opt-outs remain less 20 per cent then the reform will have achieved what it set out to do.

Of course, these rates are not the only measure of success. It is important to look at general participation levels.

It is important to capture data on opt-ins and factor it into the overall equation. Similarly, it will be interesting to see if employees decide to voluntarily increase their contributions.

Should a notable proportion of members choose to do this, it will be a definite sign that the importance of saving for retirement is a message that is sinking in.

Morten Nilsson is chief executive officer at Now Pensions