Early auto-enrolment opt-outs lower than expected, says Towers Watson

The firm told the Financial Times that take-up rates were "typically exceeding 90%" seven months after the programme began for the largest employers. Its findings were based on an annual survey of defined contribution (DC) schemes operated by FTSE 100 companies, which is due to be published shortly. The numbers are higher than those anticipated by the Department of Work and Pensions (DWP), which had previously suggested that around one in three newly enrolled pension scheme members could opt out.

Pensions expert Mark Baker of Pinsent Masons, the law firm behind Out-Law.com, said that the early opt-out figures were "encouraging". However, he said that it was "almost certainly too early" to say whether this trend would continue as more firms began to automatically enrol their workers.

"The opt-out rates we are seeing from big companies are very low, and this is encouraging, but even here we would expect more people to opt out as time goes on," he said.

"Some of the large employers have published figures from their first month after implementation, whereas it may take a few months for some employees to notice that contributions are being taken out of their salary. In other cases, contributions are low now but scheduled to grow. Each increase will bring with it more opt-outs, and so it is too early to say what the final figures will be," he said.

Baker also pointed out that those companies which already had high participation rates would find it easier, and cheaper, to encourage further participation in the programme.

"Companies which have high participation rates are unlikely to see huge rises in costs by driving those rates up by a few more percentage points," he said. "Taking a proactive approach ahead of their staging date, however, could significantly reduce the administrative burden when the time comes to implement the changes."

"By and large, these are the companies who are bringing financial advisers in to talk to employees and putting up posters in corridors. Those with lower participation rates could see costs skyrocket, and are on the whole doing less to educate staff before they have to," he said.

Automatic enrolment began for the largest employers on 1 October 2012. As of 1 May 2013, companies with 4,100 employees or more now have to automatically enrol 'eligible jobholders' aged between 22 and the state pension age who are earning more than £8,105 a year into a workplace pension scheme that meets minimum regulatory requirements. 'Staging dates' by which smaller companies and new companies will have to begin the process run until 2018.

Once the process begins, employers will be legally obliged to make contributions towards the pensions of automatically enrolled workers who do not opt out of the scheme. They will have to re-enrol those workers who choose to opt out once every three years. Between six and nine million of the 11 million people expected to be eligible for auto-enrolment will be new savers or saving more than before, according to Government estimates.

Pensions expert Mark Baker said that although auto-enrolment was a good opportunity "in theory" for employers to consolidate their benefits packages and implement innovative management systems, smaller employers would have enough administrative burdens to deal with implementing the programme itself.

"Many companies already lead the way by giving staff online platforms where they can monitor and manage all their benefits in one place," he said. "In reality, however, those companies that haven't already moved to this kind of system are finding that they have enough on their plate, between complying with auto-enrolment and dealing with real-time information, to deal with any more change than is absolutely necessary."

"Let's not forget that just complying with auto-enrolment itself can be difficult enough. A lot of companies are looking at salary sacrifice schemes for example, which can cut costs even if they are more complicated to administer, while others are looking at exactly what changes will need writing into contracts of employment. Companies employing anything more than 100 people should really be some way down the planning route already just because of these factors," he said.