If you read nothing else, read this . . .
- Corporate wraps give employees greater flexibility around investment and pension products, allowing them to switch between tax wrappers as their needs change.
- The financial education within a corporate wrap is regarded as one of its key strengths, empowering employees and engaging them with the employer’s benefits.
- Concerns about corporate wrap include the amount of choice offered to employees, the motivation for pension companies launching into this market, and the confidentiality of data.
- Benefits experts expect to see corporate wrap become part of flex schemes, with the engagement created by financial education seen as the key advantage.
Corporate wraps are touted as the next big thing for flex, says Sam Barrett. But helping staff get all their financial affairs together can pose some challenges
Technology has changed the face of employee benefits, giving staff access to greater choice and more functionality while enabling employers to demonstrate the value of the benefits they offer. But although flexible benefits schemes have been available for some time, the latest addition – corporate wraps – looks set to push perks to another level.
Corporate wraps bring together savings and investment products such as pensions, individual savings accounts (Isas) and share schemes to give employees greater flexibility. Martin Palmer, head of corporate pensions marketing at Friends Provident, says: “The days of just saving into a pension are gone. Employees want to be able to access financial products that are relevant to their life.”
For example, although someone in their 40s or 50s might want to put their money into a pension, someone in their 20s might prefer a more short-term savings or investment product that helps them build a mortgage deposit.
Employees can also move their money between products, for instance siphoning cash from a sharesave scheme into their pension. “Everything is in one place, so the employee can see exactly what they have got,” says Palmer. “Investment choices are also standardised across the products, so they could stick with their favourite funds even if they change the tax wrapper.”
Some corporate wraps will enable staff to bring in other employee benefits as well as external finances, including debt and other pensions and investments. Ann Flynn, head of marketing and communications for corporate pensions at Scottish Widows, says: “We wanted to give employees a holistic picture of their finances. Although the employee needs to go to the flex benefits platform for more details of their other employee benefits, these can be included on the [Scottish Widows’] Mymoneyworks homepage. Also, where someone includes their own financial products, we will nudge them to update the values so their overview is up to date.”
Financial education included
But although corporate wraps bring flexibility, perhaps the most significant benefit is the financial education they include. To illustrate this, Scottish Widows promotes its corporate wrap as “an online financial educational and guidance service for employees”. As well as providing a reality check service to help users identify and prioritise their financial needs, it also has information and tools to help them gain a better understanding of what they need to do to achieve their financial goals.
The move to add financial education to the employee benefits mix is welcomed by Richard Morgan, director of consultancy services at Vebnet. Last year, as part of the implementation process for a major pharmaceutical company, Vebnet surveyed employees on how comfortable they felt choosing benefits. “In response to a question asking whether they felt they had enough knowledge to make a sound financial plan, 90% said no,” he says. “Further, when asked whether they would value their employer helping them, 90% said yes. There is definitely demand for this.”
Financial education is also the part of the corporate wrap proposition that could really enhance flexible benefits. Matt Waller, chief executive of Benefex, says he is seeing more employers looking at how they can add financial advice to the mix. “The issues surrounding high earners and pensions have helped to drive this, but there is definitely more demand for everything from financial information through to one-to-one sessions.”
Adding this type of service can also enhance the value of a flex scheme. Flex is generally a once-a-year type of activity when employees make their benefits selections, but if interaction was increased through financial planning tools, this could improve engagement and the perceived value of the benefits package.
Wraps won’t overshadow flex
But although corporate wraps are grabbing all the attention, nobody expects to see them overshadow flexible benefits schemes. Michael Whitfield, chief executive of Thomsons Online Benefits, says: “Corporate wrap is a very narrow part of the flex package. Although it brings in additional savings and investment products, it is really a realisation that pensions are not that exciting for employees.”
Whitfield believes the motivation behind the launch of corporate wraps is not simply to give employees extra tools to help them pick their perks. “I think the pension providers are looking for a way to differentiate their products post-Retail Distribution Review,” he says. “If there is a shake-up in the advice market, it will be beneficial to them if they can cut out the employee benefits consultants and go direct to the employee.”
But whatever the motivation for the launches, there are other, more practical, concerns about corporate wraps. For a start, some doubt whether staff will even want to feed all their personal data into a wrap offered by their employer. Julia Turney, propositions development manager at Jelf Employee Benefits, says: “Would you want to tell your employer how much debt you were in? As well as issues around trust and who is accessing the information, there are also data protection issues.”
Ironically, problems could also occur if employees became very engaged with the wrap. Because of the tie-in between the corporate wrap and the pension provider, if the employer wants to switch pension provider, there could be problems when the wrap tools are taken away from employees.
Volume of choice might be problem
Another problem might be the sheer volume of choice. If a wrap includes a fund supermarket, the options could be overwhelming, having the opposite effect to that intended. Girish Menezes, principal at Buck Consultants, says: “People do not want all this choice. They want to know they can access a financial product that offers value.”
Menezes says employers might feel uneasy about the corporate wrap proposition, especially if it can pull in external financial products. “HR directors are interested in staff engaging with their company benefits, not external benefits. Why would they want someone checking a previous employer’s pension or looking in an Isa supermarket? They can do that in their own time.”
While many feel the PR puff hides some of the shortcomings of corporate wraps, it is still likely to have a significant influence on the employee benefits market.
As well as incorporating more education for staff, some consultants expect to see flex platforms go beyond standard benefits. Menezes adds: “It is about demonstrating the total reward, so this should include non-financial benefits, such as training, alongside the financial benefits. It is flex on steroids.”
But getting to this point presents further challenges, especially when integrating corporate wrap with existing benefits platforms. “The technology needs to develop,” says Turney. “It is hard enough to get a flex benefits platform to talk to payroll without adding a corporate wrap to the mix. There will be plenty of benefit for the provider that achieves this, but I do not expect it will happen for a few years.”
Standard Life, which owns benefits technology provider Vebnet and will launch a corporate wrap this year, is probably in a good position to make this happen. Morgan adds: “Corporate wrap will become totally integrated with flex and our systems are set up to integrate with any corporate wrap. We also expect to integrate with the Standard Life corporate wrap in the next six months or so. It is the direction employee benefits should be moving in.”
What is a corporate wrap?
Corporate wrap is the latest employee benefits technology buzzword. Taking its lead from the individual market where wrap was developed, a corporate wrap enables employees to consolidate all their investments and pensions on one platform so they can obtain an instant overview of their financial position.
As well as including the corporate wrap provider’s pension, it can also cover investments, savings and share plans. Employees can switch between products depending on their needs and subject to the underlying rules.
Education is another key part of the corporate wrap offering, with providers looking to customise information and tools to help employees manage their money better. This, they say, will improve engagement with the benefits and therefore the employer, too.
Scottish Widows was the first to launch a corporate wrap, but many other pension providers are watching closely, with the likes of Aviva, Axa, Friends Provident and Standard Life signalling their intent to launch in the next six months.
Click on the links below for more sections:
Flexible benefits: Interview with Steven Bevan of The Work Foundation
Flexible benefits: Sscheme structure can be made to measure
Flexible benefits: Benefits take-up boosted by flex
Flexible benefits: Linking flex with incentive schemes