Retirement savings: Corporate wraps
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• Corporate wrap platforms are the subject of a great deal of hype, but very few have actually launched to market.
• Corporate wraps are particularly suited to low-paid staff, younger employees, those with debt, and higher earners. However, employers should not overlook other staff.
• Employers can make the variety of products offered through a wrap platform available to different groups of workers.
• There is much debate about how useful corporate wraps are likely to be.
Case study: CSC logs into corporate wrap platform feedback
IT company CSC continually reviews its corporate wrap proposition to ensure it remains relevant and useful for employees. It introduced the Mymoneyworks platform, which it helped provider Scottish Widows to develop,
for CSC’s 7,500 UK staff in July 2010. Since then, 2,300 staff have enrolled to use it.
The platform includes the company’s group personal pension (GPP) scheme, a cash individual savings account (Isa) and an internet savings account. Employees can pay into the cash Isa and internet savings account either through payroll deductions, which are facilitated through CSC’s flexible benefits plan, or they can join the schemes directly and make payments via direct debit.
Jenny Davidson, director of compensation and benefits for EMEA at CSC, says: “We see the advantage to staff of
being able to save regularly through payroll. It is very much a needs-based offering, so what we are not doing is
pushing particular products to staff. It is all about education and what employees need.”
CSC is currently collating management data to identify which staff are using the platform and which tools they
are taking up. It also plans to survey staff. “The whole process is to keep going back for feedback,” says Davidson.
Corporate wraps are being talked up as the next big thing in reward, but how useful will they be in helping staff save for their retirement? Debbie Lovewell reports
Creating hype and high expectation around a new product is a popular advertising tool, but it is only a short term strategy. To establish itself in the longer term, a product must prove its value through its quality, usability and price. In the benefits world, corporate wrap platforms are the latest product to grab attention.
Corporate wrap platforms can give staff access to a range of financial benefits and investment options, such as pensions, share plans and corporate individual savings accounts (Isas). Employees may also be able to add their personal savings and investments to the platform. But with most wraps still to launch, employers are keen to know how useful they will be. Katharine Photiou, principal at consultancy Mercer, says: “There are two sectors of the workforce a corporate platform will be most attractive for.”
At one end of the scale, corporate wraps can provide lower-paid and younger staff, or those saddled with debt, with savings products to suit their short-term financial needs. Rather than contributing to the pension scheme, these employees may prefer to put money into a shorter-term savings scheme such as a corporate Isa. Steve Charlton, principal at Mercer, says: “We are seeing a lot of interest in debt paydown facilities. When you think about the interest that will be paid if you do not pay a debt, it will be more than if you do. Also, it encourages the ethos of saving. Making that commitment to save through a corporate wrap is a good way of getting [staff] into the mindset that once the debt is paid off, what can they do to start accumulating [savings]?”
At the other end of the spectrum, employers can use corporate wraps in their remuneration strategy for high earners, particularly to mitigate legislative changes.
Jonathan Watts-Lay, director at Wealth at Work, says: “[Employers] are looking at where there are specific regulatory changes, such as higher earners’ pension restrictions, where they could say ‘we will put in a workplace Isa, which will give you an extra £10,200 tax-efficient savings a year’.”
Higher-earning staff are also likely to have the most complex financial arrangements, so may value being able to manage all of these on a single platform. Clive Grimley, partner at Barnett Waddingham, says: “It may suit them
to have one electronic viewing platform and trading platform which can look across all the different types of investment.”
But when looking at ways to remunerate high earners, employers should ensure the strategy suits their staff. “There is no singular answer to what a high earner will need,” says Watts-Lay. “It would be dangerous to say the answer would be a product. I think the answer is a proposition that has a range of products and access to guidance.”
Top-earning employees may already have their financial planning needs covered, however. Martin Laws, principal consultant at Aon Hewitt, says: “You might argue that the uber-rich have their wealth planning covered elsewhere, so would they really interact with an employer-provided corporate wrap?”
These two groups have needs that can be addressed through wraps, but employers should not ignore the rest of the workforce.
Jamie Jenkins, head of corporate strategy and propositions at Standard Life, says: “This kind of platform should appeal to each of those audiences and everybody in between, but not in the same way. Employers can group propositions and solutions to people.”
For example, where an employer offers a sharesave scheme or share incentive plan, it can make provision, when a scheme matures, for staff to roll their shares into their pension or an Isa tax-efficiently.
The nature of corporate wrap platforms also means employers can switch on different products for staff as employees’ needs evolve.
“For some levels of staff, it could just be the defined contribution (DC) pension that is made available,” says Mercer’s Charlton. “[A wrap’s] fullest description could include Isas, unit trusts, investment trusts and so on. It is
not a bad idea to have all these things sitting in the same place because as a workforce changes, not everybody will sit in the group that doesn’t want alternative savings plans.”
Employers can then tailor which elements of the platform are available to different sections of the workforce. Martin Palmer, head of corporate pensions marketing at Friends Provident, says: “The whole concept of a corporate wrap is it provides choice, flexibility and options. People need to choose what is appropriate for their requirements.” Looking ahead, employers could use wraps to mitigate the impact of regulatory and legislative changes, such as the retail distribution review (RDR), which will stop advisers being remunerated by commission.Employers will have to pay an additional upfront fee for added extras, such as investment advice, which could affect the provision of financial education for staff.
Tobin Murphy-Coles, director of marketing and flexible benefits at Lorica, says: “The use of corporate wraps and their importance will change massively at the end of 2012 when the RDR comes into force. It will be the role
of workplace technology to provide financial education to help employees make decisions about contribution levels, and so on.”
Corporate wraps could also help employers comply with the 2012 pension reforms, particularly around re-enrolling staff every three years. Standard Life’s Jenkins says: “For a large employer with a high turnover, it is a big burden to auto-enrol people, then keep an eye on whether they have been there for three years to re-auto-enrol them.
“If you look at the way platforms are evolving, you have the ability to interface with the data on a daily, weekly or monthly basis, so the provider’s system will interface with the employer’s payroll, and say ‘who has been here long enough, is over a certain age and earning enough that we should autoenrol them’, then auto-enrols them.”
Get to grips with wraps
Given corporate wraps are still in their infancy, however, it may take some employees a while to get to grips with the concept. Mercer’s Photiou says: “Some groups of employees will instantly understand and want to do things with it, but others will be disengaged and it could take longer.”
Ensuring wraps are well communicated to staff is vital if employers are to maximise the value of their platform. Providing financial education may also help to achieve this. The industry is also still awaiting clarity on some issues around corporate wraps.
Murphy-Coles explains: “We are speculating what the design of corporate wraps is going to look like. The regulator has not been fully clear about what advisers can do when offering wraps to employers. Questions being asked of providers include whether the platform can include any pension scheme or does it have to be that provider’s scheme?”
Barnett Waddingham’s Grimley concludes: “The market is still very limited in the UK. Insurers are terribly keen to talk it up, but the cynical comment is it has not been the best of years, with the recession and so on. Is there a widespread acceptance by employers, HR teams and finance directors that they will be rushing to buy a corporate wrap? The answer is no. It could be a timing issue.”
What is a corporate wrap?
“For some levels of the workforce, it could just be a DC pension that is available. When you talk about its fullest description, it could include Isas, unit trusts, investment trusts, and so on.”
Steve Charlton, Mercer
“There is no such thing as a single definition of a corporate wrap. It covers a wide range of applications that could all be called wraps. For example, if an employer wanted to offer an Isa, perhaps as an alternative to a pension, the wrap could just be a pensions part and an Isa part.”
Clive Grimley, Barnett Waddingham
“If you cannot, through a platform, link a company share scheme to a pension to an Isa and allow someone to diversify in a streamlined way, I would argue it is not really a workplace platform, it is a retail platform [a provider] is trying to shoehorn into the workplace.”
Jonathan Watts-Lay, Wealth at Work
“A corporate wrap platform is available at corporate level for all. An individual wrap platform in a corporate environment is offered to individuals who will be able to use it and value it.”
Tobin Murphy-Coles, Lorica
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