If the mail is sent unencrypted the admin can read it. What I have is a script that encrypt incoming e-mail with the users key, so that they are stored encrypted on the harddrive. That at least protect against an intruder reading past e-mails. I use a Perl script written by Mike Cardwell for that.
Another service you might like to have for your users is WKD/WKS, so that senders clients can automatically fetch the public key for your users.
It’s beautiful!