Rentokil reports 4% opt-out rate in first AE wave

Early low levels of workers rejecting a workplace pension scheme – just 8 per cent at Asda and 5 per cent at John Lewis – have surprised the industry. The government had estimated levels could be nearer 30 per cent.

Rentokil Initial Facilities, one of the largest companies within the group, chose The People’s Pension to enrol its 7,000 workers.

It previously only had in place a defined contribution matching scheme reserved for its managers across the group, with £72.8m in assets.

Debra Hayes, group pensions manager, said one of the reasons the company chose the mastertrust to deliver its auto-enrolment structure was its simple fee structure. In addition, the company’s intention to keep control of its existing DC scheme discouraged some providers.

“So that then left us with Nest and The People’s Pension, and Nest is really front-loaded [with] their charges, whereas The People’s Pension is just a straight half a percent,” Hayes said.

“For a lot of our employees who are relatively lowly paid, they couldn’t really bear those additional costs.”

However, Graham Vidler, director of communications and engagement at Nest, said such decisions were rare and a bit surprising.

“If you look at us and The People’s Pension, we are both by historical standards very low-charging schemes, among the best out there in the industry,” he said, adding that employers tend to base their decisions on other factors such as investment approach, quality of communications, set-up and use.

But Vidler added the decision was understandable. “There is an upfront element to our charging structure, and it takes some time to play out.”

How Rentokil chose a provider

Rentokil has revealed the difficulty it faced in finding an auto-enrolment provider as several companies would only take it on if it included its existing £72.8m DC plan as part of the deal.

“A lot of the other mastertrusts wanted us to move our DC plan as well. So they were keen to offer us services across the whole piece, but not just for our auto-enrolment services,” said Hayes.

Rentokil’s current DC scheme has around 1,600 members of a total workforce of 20,000. The employee contributes 3, 4 or 5 per cent, while the employer gives 6, 8 or 10 per cent, respectively.

“The DC plan stands at [around £70m] so obviously they wanted their hands on commissions from those investment funds, I’d have thought,” she added.

The People’s Pension’s director of customer solutions Jamie Fiveash said employers have been looking at two-tier set-ups, with managers on a platform with a lower annual management charge and using the mastertrust as a portable solution for transient workers.

“This means The People’s Pension has now been successful in lots of the larger companies,” he said.

Rentokil Initial Facilities was the first in the group to stage, using the postponement period to move the date from February to May. Rentokil Initial Group and parcel delivery service City Link have staged this summer, with a further eight smaller companies to stage thereafter.

Hayes said she does not expect the 4 per cent opt-out rate to change significantly as each company enrols.

As well as the fee structure (see page one) and what it deemed a “conservative” investment approach, Rentokil said it was impressed by their chosen provider’s management of the opt-out process, which removed an “administrative burden”.

“When we started looking at this initially, people were doing it in different ways,” she said. “… Some other schemes [would] only manage the opt-out process in the first month and left it to the employer to manage the opt-out process thereafter.”

Hayes added that the main benefit was that all workers would have the same point of contact throughout the process. “Otherwise it’s a confusing message to say, ‘If you opt out before this date, you have to call this number, otherwise it’s this number’,” she said.

The People’s Pension has a shared-portal arrangement in place with Scottish Widows that provides them with around a third of their total business.

Up to July, it had auto-enrolled a total of 142,000 workers and said it “was well over target for 2013”.

Last month the Pensions Regulator published an auto-enrolment report that stated 1m workers had been auto-enrolled so far – of which, Fiveash said, The People’s Pension made up “around 10 per cent of that”.