Flexible benefits schemes have been around for 30 years. How have plans changed and what does the future hold?
IF YOU READ NOTHING ELSE, READ THIS…
- Flexible benefits schemes have been in existence in the UK for nearly 30 years.
- Flexible benefits plans have enabled employers to tailor a benefits package to cater for a diverse workforce.
- Multiple enrolment windows and anytime benefi ts are blurring the boundaries between flex and voluntary benefits.
- It is commonly felt that flex will remain in its current form for the foreseeable future
The origins of UK flexible benefits schemes can be traced back to the mid-1980s. The first plans boasted a fairly conservative four or five choices, and were more like the core benefits of today.
Martha How, reward principal at Aon Hewitt, says that although the idea of flex derives from the health and welfare plans available in the US, the concept as we know it was born in the UK. The US schemes are based on a fund provided by the employer to the employee, from which staff buy their medical insurance, but there are variations. Plans might also include dental, optical and physiotherapy.
How says: “The UK version of flex is different because we didn’t restrict it to health [benefits]. We included pension, holiday, life assurance and insured and uninsured benefits. It is fair to say the concept spun out of the US, but from the start [the UK] had a very different style.”
When their popularity began to rise, UK flex schemes were generally the preserve of larger employers, mainly because of their already well-established benefits offerings, such as pension, healthcare and insurance. Matthew Gregson, managing consultant at Thomsons Online Benefits, says: “Employers started to look at how they could better meet the needs of a changing workforce. We had changes from the baby boomer generation progressing towards Generation X, and there was a need to provide a whole host of different benefits.”
Many employers replaced their core benefits with flex in the 1990s and 2000s, believing in an all-or-nothing approach to their benefits. Gregson adds: “But now, a lot of employers have reversed that and gone back to providing a traditional package of benefits with flex on top. It’s gone back to an idea that once a core package of benefits is established, flex is a nice add-on on top to provide variety and choice.”
But are the lines between core benefits and flex, or flex and voluntary benefits, as clear as they once were? Not according to Richard Morgan, director of consultancy services at Vebnet. “The lines are blurring,” he says. “We are even trying not to use the term flex so much. This is about integrated benefit solutions, and using technology as an enabler to bring all those things together, because there is much more power in having everything in one place than lots of separate things.”
Morgan believes that the more reason an employer, or provider, can give an employee to look at its benefits portal, the more likely they are to engage with it. So, an ideal platform will give staff a combined view of their pension, share plans, flexible benefits and discounts. Matt Waller, chief executive officer at Benefex, describes the evolution of flex as meeting the need for one single place to go to for the communication of total reward and, from the benefits team’s perspective, the management and administration of perks.
“There has been increased demand for making sure it does more of those things,” he says. “We are also starting to see a real change, from a technology perspective, in additional choice. Historically, flex was a once-a-year thing, but we now have lots of clients which do anytime benefits, or rolling enrolment.”
Change in enrolment periods
It is this change in enrolment periods that is helping to blur the edges between flex and voluntary benefits. The concept of anytime benefits or rolling enrolment periods is now almost the norm for many providers, and has been driven partly by requests from both employers and staff. Many benefits, such as home computers, joining a wine club, bikes for work or childcare vouchers, can be taken up or changed on a monthly basis.
But the end is far from nigh for flex; the common view is that it will continue to develop, especially as technology advances. Benefex’s Waller says: “A big change will be how we as an industry embraces mobile technology. Flexible benefits historically were not really targeted at retail staff, or employees without day-to-day access to a PC. Now we all have a computer in our pockets that we wander around with, so everyone can get access to them.”
Healthcare provision is also reshaping flex. Thomsons’ Gregson says: “For about the last five years, we have seen a significant erosion of health and disability benefits. Employers are putting in place excesses and outpatient limits, and cancer restrictions on medical insurance.
“We are finding that most employers are happier removing that spend from those safety-net benefits, which are getting more and more expensive, and investing that money into flex.”
Focus on wellness
Consequently, popular flexible benefits such as critical illness cover, health cash plans, dental insurance and gym membership all now focus much more on employee wellness and vitality than on health, and are therefore helping employers to focus much more on prevention rather than cure.
And although the future of flexible benefits in the UK will depend largely on developments in technology, elsewhere around the globe, the concept of flex is starting to gain momentum.
Aon Hewitt’s How says: “We are seeing a lot more global plans growing and emerging, and a lot more established plans extending into new territories. Three years ago, I used to talk to perhaps two [organisations] a year about expanding their UK-based flex plan to certain overseas territories. I am now talking to two [employers] a month about this.”
The common view is that although flexible benefits schemes may not develop at the rate they have done until now, this will continue to be a popular vehicle for providing a suite of perks that cater for a diverse workforce.
Viewpoint: Stephen Bevan, director, Centre for Workforce Effectiveness, The Work Foundation
Contrary to expectations, the UK jobs market has been relatively buoyant during the economic downturn. On the face of it, the higher-than-expected rates of employment, the growth in private sector jobs and recent survey evidence that some employers are struggling to fill specialist vacancies are all indicators that there is still competition for the best staff and that this will intensify once the recovery takes hold.
In these circumstances, employers need to be clear about how they are going to attract talent and how their employment offer can be made distinctive against the background of an ageing and more diverse workforce, which will have to work longer than expected and which, on average, will have a higher risk of developing a work-limiting health problem than ever.
The way employers calibrate their reward packages, for example, will need to adapt to the changing demographic, intergenerational and ‘life course’ needs of the workforce. The temptation for some will be to intensify their efforts to offer flexible benefits packages with almost infinite choices. However, my sense is that some employers are beginning to rethink this approach, preferring to offer fewer options, but more meaningful and relevant benefits.
Also, it seems likely that the increasingly blurred boundary between flex and voluntary benefits will become more important because salary sacrifice is increasingly a feature of both. In part, it seems to me this may be an adverse reaction to what some employers see as a provider-led approach by some suppliers, and a realisation that many employees don’t really care whether a benefit is voluntary or part of a flex package as long it is relevant to them, simple to access and clearly communicated.
So, while flexibility in benefits is here to stay, demand for simplicity, transparency and relevance may define the way the market evolves in the medium term.
Case study: Munich Re employees free to buy or sell perks
Reinsurance group Munich Re implemented its flex scheme in 2008 in partnership with Thomsons Online Benefits.
Benefits offered to all employees include: buying and selling holiday; life cover which can be flexed down; pension contributions (staff can make contributions or flex down); critical illness cover; dental cover; two health cash plans; childcare vouchers; and private medical insurance (PMI).
The flexible benefits are offered to all permanent employees to buy on top of the core provision, which is single PMI, death in service, and a 10% employer pension contribution.
Employees can also flex down benefits. For example, they can sell holiday entitlement or flex down pension contributions.
Robert Wigmore, compensation and benefits manager at Munich Re, says: “[Employees] can do a combination of the two: buy some benefits or sell some. There are no restrictions; they don’t have to sell benefits to buy, they can choose to do what they want.”
Munich Re operates an annual flex enrolment window and publishes scheme information on its HR intranet site, as well as sending it to employees via email at the end the year. Staff make their annual selections in December for the following year.
Case study: CSC staff connect with multiple flex windows
Technology firm CSC implemented its flexible benefits scheme in 2000, and from the outset aimed to give employees a comprehensive range of benefits.
All UK staff have a core minimum level of benefits, which fall into four categories: financial, health, lifestyle and protection. The flex scheme gives them the ability to increase the level of benefits they receive.
CSC switched flex provider from Hewitt Associates (Now Aon Hewitt) to Benefex three years ago. Donna Nind, head of compensation and benefits, UK and Ireland, at CSC, explains that the company needed to update its legacy scheme to meet staff needs.
“As an IT company, our employees are fairly technically savvy, and they were probably looking for a more user-friendly portal through which to make their benefits selections,” she says.
CSC rebranded its scheme to CSC My Choices after switching providers to match the new appearance of its online portal. When the scheme was first launched, it had an annual enrolment period; it now offers multiple enrolment opportunities throughout the year.
There is a financial benefits based election period in March; an extra holiday election mid-year to allow employees to purchase additional leave; the main annual enrolment period in November, effective in January; and a number of benefits that can be changed at any time.
Nind adds: “We have tried to really make sure that the flex scheme is at front of employees’ minds all year round, and that the portal can be accessed all the time, so that [employees] are constantly reminded of the benefits provision.”