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For years, employers of all shapes and sizes have been falling in love with voluntary benefits schemes, but the honeymoon period may soon be at an end.
Why? Well, as is often the case in relationships, it comes down to expectations. HR departments everywhere are beginning to want more from a voluntary benefits package, whether they pay for it or receive it from one of the diminishing number of free providers. The question now is, will the industry as a whole meet this new challenge and, in doing so, continue to win and woo its clients? To be sure, voluntary benefits schemes consist of a range of financial, medical and lifestyle products that are available to employees to buy at a discount – typically between 5% and 40%. In some cases, the offering is online, where employees typically access a web portal and deal directly with each supplier over the internet.
In others, the scheme is offered offline and employees receive a brochure, outlining what is available and how to get it. Available in-house or outsourced, and launched over a decade ago, it is only in recent years that voluntary benefits have really taken off. This trend looks set to go in one direction, if only for now. Richard Rankin, senior partner with Team Rewards, says: "More and more companies are still eager to introduce them.
Most providers will talk about their order book swelling, some by as much as 100%, some more still." The reasons for this? Paul Watson, chief executive officer of 4th Contact, believes there are several. He identifies a growing recognition of the recruitment and retention advantages of voluntary benefits. He also acknowledges a growing awareness of the way in which voluntary benefits can be a stepping stone, or partner to, full flexible benefits schemes.
The benefits themselves have become more impressive, particularly from a tax-saving perspective. Employees can now purchase bikes, computers and mobile phones as well as health screening and childcare vouchers, without having to pay national insurance or income tax. And they are not the only ones to benefit. Employers also save up to 12.8% in national insurance contributions on these products.
Methods of supplying voluntary benefits plans, particularly with an online offering, has improved as the technology it is based on has become more efficient, thus making it an easier proposal for employers to implement. But while the demand for voluntary benefits schemes is intensifying, so are the demands placed upon them. Martyn Phillips, chair of industry body the Benefits Alliance, now reckons that the days of just hooking up a uniform website or putting out a standard brochure and then leaving employees to it "seem to be coming to an end".
Certainly, some providers have always added value but a rising number of clients are actively looking for it. Lisa Page, senior benefits consultant at Aon, explains: "Instead of just accepting a standard mix of products and services, with a generic logo, more and more of our clients are going bespoke, carefully selecting what they want and don’t want and making sure it is branded to match the company. I think it’s because they have become keener to make what is available as relevant as possible to their workforce." If employers are seeking a more tailored package, they are also expecting a better communicated package followed by the need for it to be better promoted to employees.
Wendy Fleet, head of marketing at You At Work, explains further: "Take-up of voluntary benefits can be quite low. Increasingly, clients are looking at how to improve on this rate and emphasise the value available to all." In terms of communication, Mark Eaton, director of Personal Group, confirms that "simply sending out an email or a leaflet, or [placing] a message on the intranet is no longer enough. Clients are asking for a greater commitment. They want proper presentations and full explanations."
Similarly, when it comes to promotion, Alistair Denton, managing director of Motivano, confirms: "There is a real shift towards conducting ongoing marketing, something that regularly reminds employees what is open to them and how they can maximise on it." And employers have also become more proactive. Examples include a pharmaceutical company which ran a roadshow featuring the suppliers of its voluntary benefits package, a resource company that has introduced desk drops, posters and a biannual newsletter, a media company which started sending monthly emails to highlight special offers and a recruitment company that has begun including reminders in employees’ payslips. Interestingly, the intensifying demands of clients are changing the way some providers do business. Enter Bringme.
Owned by Lloyds TSB, it is the largest of the free providers whose numbers have been steadily shrinking over recent years. Matthew Ansell, head of marketing, says: "We were getting so many requests to do so many extra things that we just had to put a fence around what we would do for free." So, now Bringme offers a basic option, which is still without charge, but also an enhanced option, with greater support, which is levied at £2 per employee. The impact on the market place is expected to be significant.
Andy Lister, head of employee benefits at Grass Roots Group, says: "It will slow down. If companies have to pay for voluntary benefits some of them at least will be less inclined to sign up." You At Work’s Fleet is not alone in agreeing with his view: "Despite voluntary benefits becoming more popular, some companies still need to be convinced of their worth." Personal Group’s Eaton agrees, stating: "Some cynicism lingers." But this may be no bad thing, for employers at least. "Providers will have to work that much harder to attract and maintain their clients and that means service will have to improve further," says Grass Roots Group’s Lister .
What is a voluntary benefits scheme? Voluntary benefits schemes are a range of financial, medical and lifestyle products which employees can buy at a discount. Available directly from a web portal or listed in a brochure, the scheme can be arranged in-house or outsourced. If outsourced, a shrinking minority of providers will provide a basic option for free but most charge and offer a more enhanced option. In either case, voluntary benefits scheme are aimed at being a retention and recruitment tool.
What are the origins? It evolved in the US some 20 years ago. Corporations, which had long negotiated special deals for their employees on an ad-hoc basis, began to formalise their arrangements. Worksite marketing is now mainstream there with reports that up to 75% of large companies offer a voluntary benefits package.
Where can employers get more information? Independent advice can be difficult to find. The Chartered Institute of Personnel and Development (www.cipd.co.uk) and the Chartered Management Institute (www.managers.org.uk) may be able to help. In practice What is the annual spend on voluntary benefits? According to industry body the Benefits Alliance, no figures on this are kept.
Which providers have the biggest market share? Again, there are no hard and fast facts but major players include Bringme, You at Work, Personal Group, Motivano, Combined Benefit Services, AIG, Abbey At Work, Employee Advantage, Brinc and Grass Roots Group.
Which providers increased their share the most over the past year? Once again there is an absence of reliable data, but Martyn Phillips, chair of the Benefits Alliance, estimates that Bringme has probably grown the most, followed by You At Work.
What costs are involved? Lloyds TSB, Halifax, and specialist providers like Combined Benefits Services, owned by a large insurance firm, offer a basic option for free. A fully tailored, communicated and promoted online option can cost anything from £5,000 to £20,000 for a population of 10,000 employees. The price for an equivalent offline option starts at double that.
What are the legal implications? New legislation has tightened up how financial services are marketed. Although it doesn’t directly relate to employers, most have become more cautious about how they position deals on products such as mortgages and insurance.
Are there any tax issues? No. Although government-sanctioned benefits such as bicycle loans, pensions, childcare vouchers and home computing schemes can be offered under salary sacrifice schemes. If staff give up a portion of salary in exchange for any of these benefits there are NI savings to be made for both employee and employer. Employees can also save on income tax.