Premier Coffee's AE staging met by radio silence

While the reform has tipped millions of new savers into pensions saving, industry experts say current low contribution rates may be feeding the inertia dominating a number of UK sectors, as people may not yet have felt the impact of their contributions. 

Ahead of staging on February 1 last year, Premier carried out an extended communications campaign delivered through face-to-face meetings, newsletters, leaflets and seminars, after which finance manager Sharon Gibb anticipated an influx of enquiries from anxious workers.

“We were expecting a lot of questions from employees but we haven’t had any,” said Gibb. “We’ve had a few notifications through Nest of maybe a couple of opt-outs, but otherwise we haven’t had any questions. We set up a separate email address for questions but it’s never been used."

Of the 120 workers eligible for auto-enrolment just five opted out in the available window. Since then three more workers have requested to opt out.

Neil Latham, principal consultant at Punter Southall, said such responses were largely due to inertia and that even very large employers would typically receive calls from fewer than 1 in 40 staff.

“No one really has questions because they have superficial knowledge,” he said. “Auto-enrolment was done to them, they didn’t participate.” 

Latham said he anticipates opt-outs will rise among lower-paid workers as contributions increase from the current statutory minimum of 2 per cent to 8 per cent in 2018.

“Opt-out rates have been very low, the inertia factor has really kicked in. I suspect they’re not feeling any pain in being auto-enrolled and probably haven’t appreciated it’s happened,” said Latham. “Five per cent will be the pain threshold for members,” said Latham. “It’s all about affordability.”

Striking a balance

Southampton-based franchise Premier Coffee's auto-enrolment staging experience typifies the challenges of providing pensions to low-paid workers in service and retail industries.

It employs 400 people across 32 cafes located in Hampshire, Wiltshire, Berkshire and West Sussex and has a high turnover of employees, stated by its payroll provider Sage as 50 per cent each year.

Staff are paid fortnightly, with a high proportion working variable shift patterns and therefore ineligible for pension contributions every pay period.

Premier Coffee has a two-tiered pension arrangement, with managerial staff paying a matched 3 per cent contribution and cafe service staff enrolled initially at the statutory minimum.

“It’s hard to encourage new starters; a lot of workers are university and college students, their earnings tend to fall below the guidelines that are set. They’re youngsters, it’s not something that they think about at the age of young twenties,” said Gibb.

Saq Hussain, head of defined contribution consulting for the north at PwC, said he had seen an uptick in employees engaging younger staff by rephrasing their communications. “Taking away the term pension and repositioning it as a savings vehicle can help engagement,” said Hussain.  

But Andy Cheseldine, partner at consultancy LCP, questioned the benefit of retail and service industries exceeding the statutory minimums for pension contributions, particularly when many companies are already on tight budgets and paying minimum wage.

“If I was the HR director I’d say we’re going to operate minimum benefits from an auto-enrolment perspective, allowing me to increase pay above minimum wage,” he said.

“Then I’d spend money on communicating the message: ‘If you want to opt in we’ll help you’, giving the option of spending money on contributions."