Collins, who has been a mainstay in recent All Blacks sides and played 48 Tests for his country, including three as captain, announced on Monday he was quitting the New Zealand game.
Henry names his 26-man squad in Christchurch on Sunday for the one-off Test against Ireland on June 7 and the following two matches against World Cup runners-up England and said the 27-year-old powerful loose forward's decision to get an early release from his New Zealand Rugby Union contract in order to take a break from the game was the right one.
"I think it's the correct decision (for Collins to retire)," Henry told Radio Sport.
"He wouldn't have got in the All Blacks in this first selection anyway. His form had wavered and he'd be the first to agree with that.
"I talked to him two weeks ago and said to him that it (blindside) was a very competitive position and that other guys were playing better than he was at the time.
"We watched him play against the Blues for the Hurricanes and the semi-final against the Crusaders last weekend and things didn't change a great deal in that respect.
"He was battling to make the side but I don't think that was part of his decision. I think he made the decision to move on some time ago."
Collins has been below par for the Hurricanes this season, although he was not helped by a rib injury which kept him out for three weeks, and has seen Crusaders blindside flanker Kieran Read and Blues number six Jerome Kaino leapfrog him in the pecking order.
Kaino is among a 25-man All Blacks wider training group that met in Auckland on Tuesday and seems certain of a recall after two years in the international wilderness.
Otago loose forward Adam Thompson has also been included after a strong campaign with the battling Highlanders, while Read and the rest of the Crusaders' All Blacks contingent are absent as they prepare for Saturday's Super 14 final against the Waratahs.
Collins will play for the Barbarians against England this weekend and will then return to New Zealand to consider his options, which will almost certainly include offers from clubs in Europe.