With demographic and technological evolution setting the pace,Victoria Furness looks at the long-term trends likely to affect the future of employees benefits
Einstein once said: “I never think of the future. It comes soon enough.” But with some potentially seismic shifts in the way we live and work on the horizon, benefits and HR managers would do well to disregard the esteemed scientist’s advice.
One of the most profound trends that could impact on the benefits that are offered by organisations in the future is the changing nature of the population and its effect on employee demographics. The ageing workforce could have an impact not only on what benefits employers offer but also whether they can afford to offer a benefits package in its current form if premiums rise in line with age.
The Office of National Statistics (ONS) forecasts that by about 2018 there will be more people above 40 years than below and by 2031 the proportion of people over the age of 65 years will increase from 16% of the population in 2004 to almost a quarter (23%).
How employers respond to this change will vary. Organisations will have to work harder to compete for new talent coming into the workplace. Industry commentators say this tech-savvy so-called iPod generation will have different values, expectations and skills and will expect to be able to work from home due to technological advancements and to be rewarded instantly, rather than waiting to receive a pension. More organisations will also make use of migrant workers and immigrants, however, as working conditions improve across Europe and in the emerging economies, it may become harder to attract them.
More employers, therefore, might follow the example of Irish pharmaceutical company Abbott, in offering foreign workers English lessons and help with accommodation fees.
Dr Harriet Mowat, founder and managing director of Mowat Research, says: “The ageing population could also result in older people working longer.”
Few employees over the age of 65 years are likely to want to work a five-day week, however, so many in the industry expect flexible working to become a more popular concept among older workers.
But in order for employees to work longer, they must also remain healthy. Employers such as Unilever, British Gas and Goldman Sachs already offer health and wellbeing programmes at work and others could follow their lead. Mary Kennedy, director of the Strategic Human Resource Management Programme at business school Ashridge College, says: “Rather than just giving employees the option to have a check-up every three years, I think there will be more focus on providing screening facilities and motivating people to stay within their body mass index (BMI).”
The irony of an ageing workforce is that the benefits employees want as they age – such as private medical insurance (PMI) or income protection insurance – are those which may become too expensive for employers to provide. Yet Jon Pittham, director at Cullen Financial Planning, says: “Group life insurance, for example, tends to be written up to retirement age, so there is an argument that premiums are actually coming down as people live longer.”
One of the consequences of an ageing population is that there will be increased pressures on those working to support older generations or relatives who can’t physically continue to work. In 2004, there were 3.33 people of working age for every person of state pensionable age, but by 2031, this ratio will have fallen to 2.62, according to ONS estimates. In April, the Work and Families Act 2006 extended the right to request flexible working to include carers, but it’s clear more will need to be done to help tomorrow’s generation of carers.
While the UK has not yet followed the US in adopting ‘granny crøches’, Charles Cotton, adviser for reward at the Chartered Institute of Personnel and Development (CIPD), says: “Organisations are looking at a childcare voucher-type solution for eldercare.”
However, until there are the same tax advantages for so-called carer vouchers as there are for childcare vouchers it is unlikely that such a benefit would become widespread.
Benefits such as employee assistance programmes (EAPs) have already been adapted to offer more services for carers. Alan King, president of Employee Advisory Resource (EAR), says: “In addition to enhancing the eldercare component of our service, which helps employees find care support, we’ve launched a programme called CareCoach, which recognises that carers become stressed not just from the provision of care but also managing relationships with other carers.”
CareCoach provides family members with the opportunity to draw up or amend a care schedule, that is placed on a secure website.
But it’s not just the older generation that will influence benefits strategies in the future as some employers are investigating ways of supporting their younger employees. Mark Carmen, marketing manager at Motivano, says some are using savings schemes to help graduates raise a deposit for their first home. “A lot of younger people are reluctant to pay contributions into pensions, but they don’t mind putting away up to 10% of their salary if they know they’ll be using it,” he adds.
Inflated house prices are arguably one of the main reasons why so many young people struggle to buy their first home. With retail price inflation continuing to outstrip pay increases, employees could start to feel a squeeze on their disposable income. This might make some voluntary benefits, such as retail vouchers, more attractive to employees in the future because they help reduce their weekly shopping bill.
Employers may find that they can also protect themselves from inflationary pressures on the price of benefits, by using flexible benefits as the cost of buying perks is passed directly onto employees. Stephen Brooks, a partner at PA Consulting, warns: “Over time, however, it probably means that benefits [will] fall as a proportion of overall reward.”
Certainly, the future affordability of benefits such as PMI, which has seen double-digit inflationary increases can’t be sustainable in the long term. Paul Roberts, healthcare consultant at IHC, says: “Eventually, I think employers will sidestep the problem and go to cash, and then it’s about wage inflation not benefits inflation or risk.”
Another trend that is likely to have an impact on benefits is the growing awareness of environmental issues. The government has already made changes to taxes around company cars so that there is an incentive to opt for green models.
One step further
The manner in which staff travel to work is not the only factor that is likely to change in response to environmental concerns. More employers may offer flexible working arrangements so that employees are able to work from home or cut down on commuting time by travelling outside of rush hour.
Organisations such as BSkyB have already gone one step further by rewarding employees that demonstrate environmentally-friendly behaviour and by providing options to offset carbon usage through the company’s flexible benefits scheme. BT has also embraced the climate change agenda and encouraged its employees to become involved in cutting carbon emissions through carbon clubs that tackle a specific issue, such as the carbon footprint of their office. Members are rewarded with first refusal on events and other benefits.
Employers may also encourage their employees to become involved in local conservation projects. Ron Fern, group operations director at British Trust for Conservation Volunteering, acknowledges: “We’re seeing unprecedented interest. We’re hoping this will lead to more individuals giving through payroll donations, so we can achieve our objectives not just through volunteering but also financial support.”
One major trend that has been in the headlines is the increase in obesity. The knock-on impact of failing to address the issue may be an increase in the number of employees who are absent from work through ill health or long-term disability, and higher premiums for insurance benefits. Some employers have already tried to deal with the issue through health and wellbeing benefits, such as discounted gym membership, subsidised weight loss clinics and in-house exercise classes.
To ensure the success of any health and wellbeing strategy, however, organisations must provide employees with incentives to take part. Diana Nye, commercial director at Vielife, explains: “GlaxoSmithKline shared the cost of buying a pedometer with staff, then held a competition to see who could walk the equivalent number of steps to all its office locations in the UK.” She added the approach worked “as they gave people goals, rather than just a pedometer”.
While obesity has featured high on this government’s agenda, so has choice, and employers have latched onto the concept through flexible working and flexible benefits schemes.
Although changes in legislation have extended the right to request flexible working some employers have gone further and given the right to all staff. While flexible working could provide a solution to many of the long-term issues employers face, such as a shortage of global talent, there is also the question of practicality. But Phil Flaxton, CEO of WorkWise UK, says: “There’s a fairly untapped pool of labour out there, women who have had children and ‘silver surfers’.”
Interestingly, an increase in flexible working requests may diminish the need for another employee benefit: the season ticket loan. Peter Thomson, director of the Future Work Forum, says: “You don’t save any money from not travelling with a season ticket. Some other countries offer a carnet system, which covers the number of trips you make rather than days you travel, so I can see that changing a bit.”
The concept of choice around perks is also on the rise. Employee Benefits/Towers Perrin Flexible benefits research 2007 found that 19% of employers offer a flexible benefits scheme to staff, with more employers moving towards this model. Mark Duke, principal at Towers Perrin, says: “I think the next phase is about offering people a range of benefits that are relevant to them and supplying information that helps them buy intelligently, for example, making sure they balance short and long-term benefits sufficiently.”
Technology has been one of the key drivers behind the growth in flexible benefits schemes in recent years, as it drastically reduces administration costs. It is also being used by benefits providers and employers to communicate perks in new ways to staff.
EAR is preparing to roll out online discussion forums, while other providers are looking at communicating perks to staff through MP3 downloads, web chats or webinars as a cost-effective way of reaching employees based in geographically-diverse locations.
More advanced portals or ‘wrap services’, which aggregate all the financial information relating to an individual are also coming on stream. “They fit so neatly within flexible benefits schemes,” says Duke. As these data-driven tools become more widespread employers will be able to use them to segment staff around their choice of perks. Dorian Hayes, head of client implementation at You at Work, says: “It helps to understand buying trends in certain employee populations.”
While technology might have been the saviour of flexible benefits schemes, it could herald the demise of some insurance perks, which might not look so competitive once staff start to shop around using online price comparison sites. But CIPD’s Cotton points out: “At least you know what you’re getting when buying through your employer.”
It’s a clich™ but only time will tell what long-term predictions come true. One thing’s certainly clear: benefits managers would do well to keep an eye on demographic, lifestyle and economic trends to prepare for all eventualities.
Neil McKie, head of reward at Deloitte, shares his experience of preparing the company’s benefits package for the future:†
- The workforce is becoming more diverse, which is why we focus more on flexible benefits rather than giving every perk to everyone as standard.
- Part-time and flexible working is becoming a bigger issue, so we are trying to encourage flexible working patterns and career breaks.
- We have already reacted to possible inflation by moving private medical insurance into our flex scheme.
- We’re considering whether to include carbon offsetting in flex.
- The new campus that we are building in London will have a gym and health centre, in which we are potentially looking at employing an on-site nurse and visiting dentist.
Case study – Demographics call for fresh ideas
The John Lewis Partnership is responding to changes in its workforce demographic.
Paul Backhouse, head of personnel policy and benefits, says: “Our workforce is increasingly diverse. We have more younger partners [than in the past], as well as those who want to continue working beyond the normal age of retirement.” One key change is an increase in the number of employees’ families which have two working parents.
“We have responded to these changes in a number of ways. For workers with children, we have introduced childcare vouchers, and we have increased maternity and paternity pay.
“Our flexible working policy also ensures that partners can request changes to their working hours, regardless of whether [or not] they have children,” adds Blackhouse.
The retailer also continues to offer benefits to employees once they have retired. Such benefits include discounts on John Lewis and Waitrose products.
However, the company doesn’t cover the cost of insurance benefits for staff post-retirement.
Looking ahead, environmentally-friendly benefits might also make an appearance in the package, as John Lewis’ director of personnel, Tracey Killen, has recently taken on responsibility for corporate social responsibility.
“We are now looking at a number of areas where we can introduce employment policies and benefits that encourage environmentally and socially-responsible behaviour. One key priority is the way partners travel to and from their place of work,” says Backhouse.