Five ways to retain your auto-enrolled members

In 2002, the government asked the Turner Commission to come up with a plan for addressing the obvious failure of employees to provide for their own retirement.

Instead of endorsing compulsion, it concluded that a system of auto-enrolment was the best way forward.

Despite the fears of many that they had missed a trick, and that we might see pension scheme opt-out rates as high as 30 per cent, this has not been the case, with the Department for Work and Pensions, and others, reporting opt-out statistics averaging out at less than 10 per cent.

However, doubt remains over whether we will see these rates creep upwards.

Based on experience with some of the early stagers, here are some thoughts on action employers can take to keep people participating in their pension schemes.

Make the benefit meaningful

We have seen lots of employers enrolling people on contribution rates at or close to the current statutory minimum.

There is widespread and justified concern that those enrolled on this basis may falsely believe that the act of being enrolled means that this will provide them with enough to live on in retirement; we know that for most people this is far from the truth.

This misconception will be confirmed as soon as they review their first benefit statement. It is quite possible that a full year’s employer and employee minimum contributions could be less than £100.

It would not be surprising to see a number of disengaged members opt out on the basis that being in the pension scheme just is not worth it.

Perhaps worse still, they may merely grumble but do nothing about it. Communicating the right messages and key points can help employees think about what to do to make their benefit meaningful.

Set above-minimum employer and employee contributions

As well as encouraging employees to pay more, employers can take more positive action by setting higher contribution rates. Many who have set contributions on the statutory minimum have also given employees the option to pay more in exchange for a higher company contribution.

Outside of affordability, the key questions are whether members will take advantage of this, and whether setting higher contribution rates or increasing them will cause members to stop saving?

There is no evidence to suggest higher contribution rates will cause members to opt out.

Our latest FTSE 100 defined contribution survey indicated that for employers operating contractual enrolment – prior to auto-enrolment rules coming into force – opt-out rates are no greater than those we have seen in recent headlines.

This is despite the fact average contribution rates are above the current statutory minimum.

Link scheme membership to other benefits

Many employers provide enhanced benefits for scheme members. A simple example is increased life assurance cover for those who remain in the scheme. The greater the benefits of participating in the scheme, the more likely a worker is to remain in it.

Present your scheme as an opportunity rather than a necessity

For employers, as there is no escaping their auto-enrolment duties, communicating the change is an opportunity rather than a burden. Effective communication increases the chances of a member seeing pension scheme participation as something of value.

Start your communication process early

By engaging with employees well before their staging date, employers maximise the possibility that staff are aware of and understand the reasons for being in the chosen pension scheme.

However, a one-off communication is not enough; a continuous programme is required.

Having said all of this, keeping employees in a pension scheme is just the start – the real prize is in getting them to value the contributions being paid, to understand their likely needs in retirement, and to work in partnership with the employer to move towards that.

Rudi Smith is a senior DC consultant at Towers Watson