The future of flexible benefits

Nick Golding asks whether flex will still be relevant in the future despite changing workforce demographics and working practices

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Case study: Standard Life

Working practices in the UK are constantly evolving. We only need to be reminded of life before emails, the internet and mobile phones to wonder how we all coped.

In the benefits world, the number of employers offering flexible benefits schemes is continuing to increase. This year's Employee Benefits/Towers Perrin flexible benefits research found that 35% of respondents now offer flex, compared with 23% last year.

But with more change on the agenda for employers, will flex schemes that are introduced or refreshed now still be relevant in years to come?Whatever the future holds, many believe the fundamentals of flex are here to stay. Paul Farrell, head of flexible benefits at Aon Consulting, says: "The main principles [of flex are that it] provides control of expenditure for the employer and offers choice to the employee. For this reason, flex, even in its current form, will be commonplace in most organisations going forward."

In order to remain relevant, however, it is likely that flex schemes will need to undergo some changes in order to adapt to employers' needs. Martyn Phillips, director of employee benefits at Prudential, believes that schemes will soon be capable of replacing some wider HR functions.

Operations such as absence management tracking and administering self-service holiday forms, for example, are commonly carried out by an HR system, however, these could soon be included as standard within flex packages.

"Recent developments have shown that absence management tools, for instance, are now being built into flex, and with flex doing a not too dissimilar job to HR systems, I can see it encroaching on the HR systems market, going forward," says Phillips.

Including such systems in flex could also prove more cost effective, helping to cement the relevance of flexible benefits schemes going forward."Given the amount of money that is spent on installing a HR systems, installing a flex scheme with the necessary built-in components will be much more cost effective," adds Phillips.

Flex schemes must also be capable of adapting to changing workforce demographics. Following the introduction of age discrimination legislation in October last year, employers are faced with the prospect of an ageing workforce, with employees now required to work even longer before they can claim their pension. And with people living even longer, it is expected that many will want to continue working beyond this age.

Richard Sadler, reward consultant at Premier Employer Solutions, says: "The diversity at work will continue and we are looking at an ageing population and a declining birth rate. It is possible that in ten years time there could be more [aged] over-60 [years] in work than [those] under 20 [years]."

A loosening of immigration laws in the UK has also laid the foundations for a vastly multi-cultural workforce. This integration is also expected to continue spiralling in coming years.

All this means flex will have to appeal to a different audience, so it will need to be versatile enough to stand up to this challenge."[These potential changes] really suit flex because you get to choose your own benefits that suit your own lifestyle needs. This principle will be even more important going forward," explains Sadler.

One way that employers can ensure that the options included in flex remain relevant for all staff is by segmenting their workforce according to factors such as age, length of service and salary bracket. This information can then be used to tailor benefits options to suit each group of employees. This process is likely to become increasingly prevalent.

Further shifts are also predicted around the number of staff choosing to take advantage of flexible working arrangements. Fuelling this are technological advances, such as video-conferencing, which are reducing the need for face-to-face meetings.

The upshot is that fewer people will be attending the workplace on a daily basis. This could potentially put a strain on how flex is communicated, with methods such as roadshows becoming more difficult to deliver.

In order to survive, flex must cope with this migration away from the office where it is easy to communicate with staff.

Sadler believes it will need to become much more digestible and simpler to use for those outside of the traditional working environment. "At the moment, flex isn't user-friendly enough for a lot of people and, going forward, with the amount of people working remotely, this will have to change," he explains.

Employees' growing desire for choice is also likely to impact on flexible benefits schemes. "This desire for choice is completely impacted by society. Employees know that they can get more than just one option outside work, so this is expected at work too," says Sadler.

Flex must be versatile enough to cope with new benefits coming into the fray, as well as those going out of favour. While childcare vouchers, for example, currently top the majority of employers' flexible benefits wish-lists, the possibility of the introduction of new perks, such as tax-breaks on eldercare, may mean that flex will need to be able to easily accommodate a new number-one benefit.

"People's needs evolve over time and flex must deal with this. Childcare is very popular and if the Chancellor [introduces] tax breaks on eldercare too, flex must accommodate [these]," says Phillips.

Employees' desire to be able to make changes more than once a year could also have a bearing in how flex is designed in future. When the home computing initiative (HCI) was pulled suddenly by the Chancellor in last April's Budget report, many employers that were due to open their flex scheme's election period soon after the deadline for HCI expired were left with a gap in their plan.

Martin Harris, head of business development at provider Bringme, explains: "Flex has to be more fluid in its appearance. Providers and employers need to be able to fill [any gaps] left very quickly, because staff and say 'what can I replace it with?'"So with both working practices and workforces undoubtedly set to change, flex will need to adapt if it is to remain relevant to employers and staff in future years

Trends

The trends that could impact on flexible benefits schemes in the future include:

•Flexible working

With flexible working practices becoming increasingly popular, employees will spend more time at home and less time at work. This is likely to make scheme communication difficult, especially where roadshows are a favoured method.

•Growth in choice

People have the luxury of being able to shop around for items, and this expectation is likely to spill over into the workplace, with employees demanding more options around benefits.

•Replacing HR systems

Including systems to carry out tasks such as absence management and administering self-service holiday forms could soon be included as standard in flex schemes.

•Ageing workforce

With the retirement age set to increase to 68 years by 2046, and people generally living longer, it is expected there will be more older employees in the workplace in future years.

Case study: Standard Life

Having implemented flex in April 2006, Standard Life is aware of its changing workforce demographics and is working to keep flex as popular in the future as it is today.

Bearing in mind the gradual shift in the age of its workforce, the financial services company is looking to understand which benefits appeal to more mature employees in order to target them accordingly.

Marek Wilkojc, compensation and benefits manager, explains: "We are conducting a review of the flex scheme and are trying to understand what [has] worked for our mature staff. We are also looking at salary levels and how that has impacted on benefit choice."

Although allowing employees to dip into their flex package to make choices more than once a year may bring more fluidity to the scheme, Wilkojc explains that this would create extra work.

"I think we [will] continue to conduct renewals on an annual cycle. Any more than this could potentially become an administration burden," he says.

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