Once upon a time, what seems like a very long time ago, my job was largely based on employer premises, running pension scheme “surgeries” for employees.

All these years later, and one particular incident remains with me.

At the end of one surgery, a very large bloke burst into the room without an appointment, and then angrily demanded that he be removed from the company pension offering with immediate effect.

His reason for this demand? He had just received a notification of a pay-rise of 3%, and given that his pension contributions were linked to his salary, he now felt that the higher contribution level from his take home pay would be unsustainable.

After he had calmed down a little, I was able to crunch the numbers for him. The actual impact of the pay rise was an increase in his personal pension contribution of less than £2 per week, and (of course) the balance of his pay rise far outstripped this additional cost.

His anger seemed to subside, and with a shrug he announced:

“Well, in that case, let’s just roll with it”

Which I took to be his formal instruction that he no longer wished to exit the pension scheme!

So why am I relating this story now? Well it seems this mirrors the thought process of many employees that are currently subject to auto-enrolment.

As we have already covered on this blog (and indeed at our various events), the percentage of employee’s opting-out of pension schemes from the early staging employers is looking remarkably low. Our own findings at Jelf, those published in the trade and HR press, and anecdotal conversations with large employers all point towards a current trend of less than 10% (often much less) of employees opting out of pensions once enrolled.

So why is this?

Well there are many factors to consider, but returning to my earlier story, for many employees it may be around the (lack of) immediate cost.

The intended minimum employee contribution to a pension scheme for employees will be around 5% (with 1% arising from tax relief) of the employee’s band earnings.

Yet these figures are not required to be achieved in one jump. As with the employer’s contribution, there is a phasing-in of the employee contributions in the period from staging date through to 2018. As a result of this, many employees who have already been enrolled may currently be paying just 1% of band earnings as a pension contribution.

More than one HR Director has told me recently that, in the above scenario, the employee’s current commitment will be just a few pounds, or even pence, per week. The cost is so minimal that most won’t feel any immediate financial pain from this commitment. It therefore follows that the financial driver for employees to opt-out of pensions may well be lessened also.

Or to put it another way, many employees are applying the “roll with it” mindset at present. So the phasing of minimum contributions, which was largely designed to smooth the employer cost commitment, could in fact be a masterstroke in reducing the number of opt-outs from pensions.

Best regards

Steve