The recession and looming pension reforms have affected attitudes to flex, but meeting staff needs is still the top reason for offering a plan, says Debbie Lovewell
The top reason to offer flex has remained largely unchanged over the 12 years Employee Benefits has conducted research in this area: that it meets the workforce’s diverse needs and values. This year, 79% of respondents felt it recognised these diverse needs; close to the 84% that said so in 1998.
This reasoning is linked to the perception that flex enables staff to tailor their benefits to their needs or lifestyle. Almost three-quarters (71%) of those that do not offer flex perceived this as an advantage, compared with 88% of those that do offer a plan.
Promoting employee understanding and appreciation of flex remains high on the list of perceived advantages of offering a scheme – cited by 67% of respondents. This has increased in importance over the years. Back in 1998, just 36% felt flex promoted staff understanding of benefits, although two-thirds said it promoted appreciation of perks. In 2005, 60% of employers that offered flex said this was a main advantage of doing so.
As regards the costs of flex, there is a sharp difference of opinion between those that do and do not offer it. Just 29% of those that do not offer flex perceived cost control/reduction as an advantage of offering a scheme, but this rose to 47% among those that do offer flex.
Similarly, just under one-third (32%) of employers that do not offer flex perceive it to make the most of tax or national insurance breaks, compared with the overwhelming 77% of respondents that offer a scheme.
Conversely, 76% of employers that do not offer flex cited implementation costs as a barrier to it, compared with 56% of those that operate a scheme. This gap has closed slightly over the years. Back in 2004, 29% of those running a scheme perceived the cost of implementation to be prohibitive, compared with 60% of those that had no scheme.
As 2012 draws closer, employers appear to be actively considering the impact of forthcoming pension reforms (which will see the introduction of auto-enrolment, compulsory employer and staff contributions, and the national employment savings trust, formerly known as personal accounts) on other benefits and their business.
This is demonstrated by the fact that just a third of employers (compared to 45% in 2009) do not know how it has affected their view of pensions in relation to flex.
Where employers have taken a view on this, more appear inclined to use flex to ease the transitions under the reforms.
With all the financial pressures of the recession, many employers have put maximum effort into finding savings. One area where this can be done is by offering tax-efficient benefits via salary sacrifice, which can bring tax and NI savings for staff and NI savings for employers.
Such tax-efficient benefits are frequently incorporated into flexible benefits schemes, so it is not surprising that two-thirds of respondents say their flex scheme is effective at enabling them to make the most of tax and NI breaks. The percentage of respondents that feel flex has helped to reduce or retain the cost of reward has also increased over the past year – up to 55% from last year’s 38%.
Overall, the top success factors of employers’ flex plans have remained fairly steady over the past 12 years.
A year ago, respondents appeared to be seeking ways to make their flex scheme more cost-effective to help deal with the effects of the recession. Just over one-third (36%) said they would come under more pressure to introduce tax-efficient benefits via salary sacrifice. A year on, 29% said this is exactly what happened.
A total of 42% also reviewed their providers to obtain a better deal, compared with the 36% that intended to do so 12 months ago.
But not all employers’ expectations came true. While 36% thought more staff would take cash rather than spending the money on benefits, just 12% said this actually occurred.
Just under a third (31%) of respondents said the recession has had no impact on flex.
A popular way to fund flex is to use the savings on employer NI gained from offering tax-efficient benefits, such as childcare vouchers and bikes-for-work schemes, via salary sacrifice.
There are also income tax and employee NI breaks available on some employer-paid perks. One-third of respondents said the savings encourage employers to introduce flex, which is a drop on the 45% that said so last year. Last September’s government announcement of plans to phase out tax breaks on childcare vouchers from 2016 (subsequently revised) has make employers cautious about using such breaks, which may explain the sharp decline.
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More articles on: Employee Benefits/Towers Watson Flexible Benefits Research 2010