New flexible benefits survey
Where to next for flex? A question Jacqueline Otten, principal at consultants Towers Perrin, says she is often asked. In answer to this question, Otten believes companies need to find a way to make offerings truly flexible and integrated into the total reward package.
In particular, she says that: “This relates to the company-paid element of the benefits package, where many plans only offer very limited flexibility, requiring a minimum level of risk benefits such as life assurance and private medical insurance, and do not permit employees to ‘flex out’ of key benefits such as a pension.”
She goes on to add that some of this lack of flexibility is driven by the insurance market and the likely impact on benefit costs, but believes there is still a large element of paternalism that “holds organisations back from allowing employees a free rein”.
Flex growth levelling off
These comments come on the back of the findings of a new survey on the subject from Employee Benefits magazine sponsored by Towers Perrin. The survey found that 31% of the 541 respondents offer a formalised flex scheme which was similar to the proportion found in the previous year’s report.
On the one hand this appears a significant minority while, on the other, it perhaps represents another false dawn for the widespread growth of the approach that has been predicted for some time. For many years, flexible benefits have been hailed as the next big thing but the lack of growth over the two years perhaps signals that the number of schemes has levelled out.
Also similar to last year’s survey was the finding that companies with flexible benefits schemes regard the main advantage of them as being their recognition of the diverse needs and values of the workforce. Second to this is that they enhance the image of the employer, while other prominent responses included that they improve employee understanding and appreciation of benefits and aid retention.
Despite these advantages, however, there were still 7% of the companies that rejected the idea of flexible benefits and 6% who have never considered the idea.
The survey defines flexible benefits as:
“A formal plan run for a set contract period whereby staff can opt into and out of employer-paid benefits, select employee-paid benefits or take cash. This is not the same as voluntary benefits which are discounted products made available through the employer but the contract is between the employee and the provider.”
Flexibility around pensions
Of those operating flex, Otten adds that some organisations are starting to tackle the issue of giving employees the ability to vary the majority of their flex fund including the most significant element, the pension contribution. This, she adds, is especially true in large employers.
Such moves allow employees to own their package and decide how they want it delivered as well as enhancing financial education.
Allowing flexibility around pension contributions, Otten believes, will be impacted with the introduction of personal accounts in 2012. This means there is likely to continue to be scope for many employers to include this degree of flex in their schemes.
Barriers to flex
Even though there is an overall widespread positive perception of flexible plans, the survey highlighted a number of barriers to introduction.
Over half of companies were either concerned with the costs of implementation, the costs of administration or the complexity of the administration involved in running a scheme.
Other key concerns included getting approval for the business case for a scheme and problems associated with updating existing technology.
In addition, the potential removal of tax breaks by the Treasury was also a concern.
Key survey results
Carried out in November 2007, 541 survey responses were received from readers of Employee Benefits magazine and users of its web site.
Advantages of flex
Over four-fifths of respondents said flex recognised the diverse needs/values of the workforce.
64% thought it improved the image of the employer.
Over half believed that it promotes understanding/appreciation of benefits.
54% said it improves retention.
53% believed it reinforces the concept of total reward.
Barriers to introduction
The three main problems, all mentioned by 54% of survey respondents, were either the cost of implementation, complexity of administration and cost of administration.
A further 39% were concerned with the approval of the business case for flex.
Other main points mentioned included problems with updating existing technology and the potential removal of tax breaks by the Treasury.
Flexible benefits offerings
In total the survey listed 45 benefits offered in schemes:
The three most popular were childcare (93%), annual holiday leave (85%), dental (80%) and medical insurance (80%).
Other prominent benefits included life insurance for employee only (70%), bicycle loans (64%), critical illness insurance (64%) and health screening (64%).
Of the likely additions to schemes, the most common were carbon credit/offsetting, bikes for work, payroll giving and food discounts in on-site restaurants.
The survey stresses the importance of communication with regard to flexible benefits.
Over 70% use the internet or intranet while slightly fewer distribute books and brochures.
Next most popular is email (65%), induction meetings (57%) and posters (56%).
A further 13 methods are outlined in the survey with more hi-tech approaches including videos, podcasts and webinars.
Flexible benefits administration
44% of schemes are done in-house, 18% are fully outsourced and 38% are partly outsourced.
The proportion of employers administering their scheme without external help appears to be on the decline.
In 2006, almost three-fifths (58%) of employers administered their scheme in-house, while now only 44% go it alone. But of the remainder, 38% do not relinquish the administrative task entirely, as they partly outsource their scheme. This is a significant increase on 2006 when 21% of employers took this route.
Use of consultants
63% of employers use consultants for some aspects of their schemes.
The main use is one of design, used by 77% of firms.
65% use consultants for provider selection while 59% use them for administration.
Around a third of respondents used consultants for either scheme communication, building a business case or tax approval while 23% mentioned legal aspects.
A final word
“There's nothing like a flexible benefits package to hammer home the perks that are on offer, so it is not surprising that just under two-thirds (62%) of respondents with flex say it has been effective at showing staff the value of their perks. Complementing this statistic is the rise in respondents who believe flex has been effective at increasing the employee perception of the package, which now stands at 55%, compared with 45% last year.” - Employee Benefits magazine.
Want to know more?
Title: Employee Benefits/Towers Perrin Flexible Benefits Research 2008.
Methodology: Questionnaires were sent to readers of Employee Benefits and users of its web site in January 2008.
Sample size: Completed questionnaires were received from 541 organisations. The study concentrates on employers which offer a traditional flex plan that is communicated as a whole and run for a set period of time.
Availability: To download the 12-page report, free of charge, in PDF format visit the Employee Benefits magazine site at www.employeebenefits.co.uk and choose the “Research” section.
Employee Benefits magazine is published monthly and is written for benefits practitioners in large UK companies. To find out more visit www.employeebenefits.co.uk.
Towers Perrin is a global professional services firm that “helps organisations around the world optimise performance through effective people, risk and financial management”. To find out more visit www.towersperrin.com.