Employers often want to ensure staff are healthy and financially secure, but they may not be able to afford to invest in perks for both, so how can they decide which of the two is most important, asks David Woods
Every new year most of us find ourselves making the same old resolutions. While some pledge to go to the gym, give up smoking or maintain a healthier diet, others see the start of another year as the perfect time to begin saving for a rainy day.
In an ideal world everyone hopes for good health and financial security, but given the option, most people would be hard pushed to decide if they would prefer a healthy future for themselves or a wealthy one.
With stories about record levels of personal debt, the savings crisis and rising obesity in the UK frequently hitting the headlines, there is no doubt these are issues which need to be addressed. While some employers take the view that the physical and financial wellbeing of staff is the responsibility of the state or individuals themselves, others perceive that there are business benefits in investing in health and wellbeing perks such as private medical insurance (PMI), dental insurance and occupational health, or financial benefits such as a good pension scheme, share plans and financial education.
At the very least, employers that invest in these benefits can expect a rise in staff productivity, motivation and engagement to stem from a workforce that is fit and healthy, or financially secure.
While those organisations that invest in these perks may well be labelled as paternal, others that don’t may in the future come under pressure to introduce health and financial wellbeing initiatives in order to remove some of the burden of care from the government and state resources.
The Welfare Reform Act 2007, which is due to come into effect next year and is aimed at encouraging those who are on long-term sick leave or incapacity benefits back into work, for example, could increase employee demand for income protection cover and rehabilitation benefits once staff realise that their entitlement to state provision may not be what it once was if they find that they are unable to work.
Employers are waiting to see what recommendations Dame Carol Black may make following her consultation on the government’s work and wellbeing strategy, and whether these will have an impact on the benefits they offer staff.
On the financial front, the government’s Thoresen Review, headed up by Otto Thoresen, chief executive of Aegon UK, is currently looking into the feasibility of delivering a national approach to generic financial advice for those who are considered to be most vulnerable to the consequences of poor decision making.
In addition, by 2012, employers will be legally obliged to offer staff access to an occupational pension scheme or personal accounts, to which they must contribute 3% of each employees’ salary.
As the benefits market and legislation changes, therefore, employers keen to pursue best practice must consider the needs of their workforce in order to resolve the dilemma of whether it is more important for them to focus on offering health or wealth benefits, and to identify how they can strike the right balance between the two.
Interest in healthcare among employees is strong and staff often value benefits such as private medical insurance (PMI), dental insurance, health screening, occupational health and healthcare cash plans. According to the report Business action on health campaign published by charity Business in the Community in October 2007, more than two-fifths of employees (43%) would like their employer to provide them with private healthcare benefits, however, only a fifth (21%) of employers actually do so.
A caring image
Investing in healthcare benefits for employees can help an organisation to project a caring image towards its staff, particularly if it is able to extend cover to employees’ families. This can have a positive effect on staff motivation and engagement, if employees feel that their employer is prepared to take care of their health and wellbeing.
Such an approach also has advantages for the organisation in helping to reduce sickness absence levels, particularly if benefits enable staff to access treatment more quickly.
Raman Sankaran, member services director at healthcare cash plan provider LHF, believes there is set to be a growth in this area. “I think we will see an increased focus from business in the provision of health and prevention benefits into the future. This is driven by lowering staff absence,” he explains.
Employers can also provide health and wellbeing benefits at a relatively low cost, such as access to discounted corporate gym membership or a healthcare cash plan.
Paul Roberts, strategic director at IHC, believes it can be easier for employers to measure their return on investment on health-related benefits than on financial perks. “With wealth benefits, there is very little measurement. [Employers] would have to carry out staff surveys or gather anecdotal evidence,” he says.
Organisations that offer such perks will usually be able to measure the direct cost of absence on their business and put together a business case to implement benefits that can best deal with the problem. They can then measure the return on this investment in terms of reduced sickness absence.
While some employers would prefer to invest in their employees’ physical wellbeing, others would rather focus on helping them to become financially secure. Kim Honess, head of flexible benefits consulting at Watson Wyatt, says: “Wealth benefits are not dropping away. If anything, they are improving.”
Pension schemes have long been regarded as a key benefit, and with the pensions crisis rarely out of the headlines, many employees now expect employers not only to provide access to a scheme, but to also contribute towards it.
Damian Stancombe, head of employee benefits at actuarial firm Punter Southall, says: “I strongly believe in pensions and I believe it is a tax-efficient way to save for [the] future.”
As more and more defined benefit (DB) schemes are closed, organisations that are still able to offer a DB scheme will find that it can be a very attractive recruitment and retention tool. “If [an employee] leaves an organisation with a final salary scheme, it is unlikely that they will ever go into another DB scheme. When they are negotiating salary with a new company, their [new] employer should be well aware of what they may be giving up [if they want to secure their employment] ,” adds Stancombe.
Financially-savvy staff may actively seek out employers which invest in good pensions provision. Rosemary Crabb, rewards analyst at building society Nationwide, explains: “Pensions are important from the onset, but it is crucial for young people to understand their importance. Perhaps people are now more [focused on] a good pension scheme because it is always in the press, but some see their pension as being a long way off.”
Employers that have so far shied away from investing in pensions for staff, however, will soon no longer have any choice in the matter. In 2012, the government is planning to introduce personal accounts, into which staff who are not part of an occupational pensions scheme will be automatically enrolled. Employers will have to contribute at least 3% of the employee’s salary, while the employee must contribute 4%.
Although this will be beneficial to staff who are not already part of a pension scheme, IHC’s Roberts believes it will be detrimental to the role of a pension plan as a recruitment tactic. “If it comes to be that everyone is to have employee pensions then it will become nothing more than a hygiene factor, and a matter of staff just ticking a box.”
However, Steve Browning, group protection product manager at Friends Provident, believes personal accounts may increase employees’ interest in pensions and cause them to favour employers that offer pensions with contribution levels above what will be the statutory minimum. “People will choose employers that offer good pension plans. [Personal accounts] will get large numbers of employers, who don’t offer pension schemes, to do something about it, but [this] will not affect the number of employers who already offer something,” he explains.
Employers can also offer their staff a number of financial benefits to help employees save in the short term. These include share incentive plans (Sips), sharesave schemes and corporate individual savings accounts (Isas). In many cases, these may result in tax savings for staff. “Employees who are in a corporate Isa or some corporate share vehicle, will get a nest egg with a tax break. If they choose not to spend the money, they can roll it over into their pension fund and enjoy the tax break twice,” says Honess.
Financial education should also not be overlooked. If implemented properly, financial education can not only help employees personally, but also increase the take up of the wealth benefits offered by their organisation.
Ashley Bestwick, reward manager at IPC Media, suggests it can also potentially lower staff absence. “Poor financial management can have an effect on an employee’s health. It can cause sleep and stress issues, which can affect general health and happiness. Proper financial education can prevent this,” he says.
Enlightened employers are also beginning to focus their attention on helping employees to address student debt and mortgage issues.
Workforce demographics
When deciding whether health or wealth-related benefits will be the most advantageous for their organisation, employers will have to take a number of issues into consideration. It is important, for example, to consider the industry in which the organisation operates as well as its workforce demographics. “There is a need for both [health and wealth benefits] but employers need to concentrate on proportional balance. Where a company can succeed is by understanding the nature of the workforce,” says Sankaran.
He adds employers should be prepared to be flexible to the needs of their workforce.
While identifying which benefits employees are most likely to value is an important factor when deciding whether an organisation should focus on offering health or wealth-related perks, employers should consider that the options staff claim to want may not always be best for them or for the business. “If [an employer] asks staff what benefit they would like, their first answer might not be access to physiotherapy treatment but, from a business point of view, this could significantly impact the bottom line,” says Sankaran.
Dr Richard McBain, director of specialist masters and doctoral programmes at Henley Management College, has carried out extensive research into what drives employee engagement in the workplace. “What I believe attracts and retains people [in a company] is the nature of their job, but if you look beyond the job towards benefits, health and wellbeing benefits are more important than financial benefits,” he explains.
Roberts adds that we now live in a consumerist society where people are more concerned with seeing an immediate gain rather than looking to the longer term.
Whatever perks employers opt for, it is vital to communicate these to staff effectively in order to maximise take up and employees’ perceived value of the offering. This is particularly important if staff may not initially recognise the value of what is on offer. Younger employees, for example, may not be aware of the importance of a pension scheme and the need to save for retirement, unless this is spelled out for them.
According to Stancombe, employers can successfully run health and wealth benefits in tandem. Although most do not have an endless pit of money to spend, they need to look at ways of making what resources they do have work best for the organisation. For example, employers with a number of transient workers that are not be interested in joining a pension scheme, may be better off investing the money they save on pensions in health and wellbeing initiatives that help staff become more productive.
Balancing the needs of staff with those of the organisation should provide the answer to the health versus wealth debate.
Case study: Benfield ensures staff are financially aware
Reinsurance consultancy Benfield Group takes wealth perks seriously. It offers a group personal pension (GPP) into which staff can receive employer contributions as soon as they start work at the company.
Employer contributions vary for each employee depending on their salary and age, although staff do not have to make any contributions to the scheme themselves in order to receive employer contributions. The benefit has a 99.5% take-up.
Although it does not have an auto-enrolment process for its 800 staff, Benfield sends an email to new joiners reminding them of the pension. It has also made the registration process very simple.
Staff also receive access to financial advice approximately twice a year, on issues such as investment, equities, planning and inheritance. This is funded by the company but is provided to staff by an independent financial adviser.
With around 90 pension funds for staff to choose from, Jim Harwood, international pensions and benefits manager, believes staff should be properly educated. “Good wealth benefits are a key recruitment and retention tool. There is a general lack of knowledge with pensions and I think it is appropriate for individuals to understand the value of the benefit.”†
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Case study: Scottish Power switches staff on to wellbeing
Scottish Power provides a number of health and wellbeing perks for its 9,400-strong workforce.
Its 630 senior management staff all receive fully-funded private medical insurance (PMI), which is available at a discounted rate to all other employees.
The firm’s key sites also have on-site doctors, nurses and physiotherapists for staff to use. David Buchanan, head of reward, believes such health initiatives are well worth investing in. “These health plans are well used by staff and there is regular monitoring to ensure that what we have in place is fit for purpose. There is a cost to this and we would not have [medical professionals] on site if staff were not making the best use of them.”†
The company also has on-site gyms at some of its locations and provides staff with HSF and Medicash healthcare cash plans, bikes for work, discounted gym membership and a newly re-launched employee assistance programme.†
“When we look at the long-term impact, we have a workforce that is healthier and this is reflected in absence rates and employee satisfaction,” explains Buchanan.