Blog Article

 Workplace Pensions

Smaller firms, workplace schemes and the journey ahead

August 27, 2019

3 people outside drinking coffee

Jamie Jenkins, Head of Global Savings Policy at Standard Life, examines why the auto-enrolment opt-out rate for smaller firms is higher than in larger organisations and looks at the possible solutions.


The success of auto-enrolment has been well documented since it was introduced in 2012 with over ten million more people now saving into a workplace pension.

Auto-enrolment was introduced to ‘nudge’ people into retirement saving, while not compelling them to do so. Employees can opt out, but statistics continue to show that opt-out rates are low. Notably, however, they are higher in smaller firms than larger firms.

Recent research from the Association of Consulting Actuaries (ACA) confirms that opt-out rates in smaller firms is currently around 26-30 per cent, while opt-out rates in larger organisations is around 6-10 per cent. It also reported that 65 per cent of small businesses employing fewer than ten people expected ‘modest’ or ‘substantial’ decreases in pension scheme participation as a result of further increases in the contribution levels.

The research has also shed some light on the reasons for this, suggesting that employees of smaller firms, which typically pay lower wages, may be under more pressure to opt out because of affordability.

Workplace schemes of smaller firms versus larger organisations

Affordability may certainly be one of the reasons but there are other possible reasons why pension scheme opt-out rates are higher in smaller firms. Larger organisations usually have the resource to offer a more generous pension scheme and are able to encourage awareness of it so that employees can make good financial decisions. And when they do build awareness of their schemes, there’s usually a significant take-up among employees.

Small businesses face different challenges when it comes to offering a reward scheme for their employees. For example:

  • They usually don’t have the budget to spend on generous workplace scheme contributions or benefit packages and, unlike larger firms, are unable to offer employee support programmes to help with financial wellbeing or build awareness of the workplace scheme due to lack of resource.
  • There’s not that same ‘herd mentality’ that’s inherent in larger organisations where groups of people emulate positive behaviours.
  • Small businesses are unlikely to host a staff intranet site or online tools promoting the benefits of saving into a workplace scheme, which employees of larger organisations may take for granted.

Understanding the value of a workplace pension scheme

For all employers, whether large or small, the most important message to communicate to employees is the value of being in a workplace pension scheme. Government policy is shifting more responsibility to individual savers to look after their own retirement needs, so it’s crucial that people take advantage of what’s on offer through auto-enrolment. The employer’s role is to facilitate that, and of course make a financial contribution, too.

At the moment, there is little evidence that employees understand what a ‘good’ workplace pension looks like, despite many larger employers offering significantly higher contribution rates to their people. This may change over time, with employees becoming more focused on how generous their employer is and the difference this will make to their retirement.

We also know that older employees opt out of a workplace scheme much more readily than younger employees. Many believe it’s too late to start saving for retirement, but the message needs to be that it’s never too late. Even a small amount of savings is better than none at all, especially when the employer is contributing something.

The communication challenge

Key to all of this is the ability to communicate with employees, which we know can be challenging for employers. Many will be concerned that anything they say to employees could be construed as advice, and that they will be liable for the outcome.

The Pensions Regulator has produced some useful information on what employers can discuss, as set out in this short guide

Auto-enrolment has marked the start of a brighter future

With auto-enrolment now in place for all UK employers, and with contribution rates meeting their target 8%, we are much better placed to start the conversation about retirement, even if it’s a long way off for some employees. Getting people saving will get them talking, and hopefully that will start to provide people with more optimism about life after work.


Our ‘ready-to-go’ campaigns are free of charge and provide employers with communication materials that cover all the main parts of workplace pensions. To find out more, go here 

For further information about pensions that you can share with staff, take a look at our pension guides and retirement calculator here 

The Money and Pension Service is the new single body which brings together Pension Wise, the Pensions Advisory Service and the Money Advice Service. It can offer support around pensions for both employers and employees. For more information, go here 


The views expressed in this blog should not be regarded as financial advice.

It’s important to remember that a pension is a long-term investment and as such its value can go down as well as up. It could even be worth less than was paid in.

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