media coverage: hr versus the fds

HR versus the FDs

Once considered too expensive to get past the FD, flexible benefits packages are not only more affordable today but have advantages that go beyond recruitment and retention, including employee empowerment. Marek Handzel takes a look

There was once a time when just offering a benefits package gave an employer a strong allure in the job market. But with employee benefits now a standard feature of any organisation hoping to attract the best possible staff, this is no longer the case. Companies are having to look at better ways of attracting and retaining personnel and two words seem to be on the lips of many HR managers today - flexible benefits.

With the continuing trend towards DC, flexible benefits (often referred to as flex plans or cafeteria benefits) have been marketed as the answer to everyone's woes. If the technology and consultancy providers of the schemes are to be believed then the implementation of a flex plan puts companies on the path towards employment nirvana.

Employers are happy for a number of reasons: it is a convenient vehicle with which to move away from the inherent risks of DB; there are some genuine long-term tax savings to be made; it portrays them as caring about their staff; and it equips them with a proven recruitment and retention tool. Employees, on the other hand, get to pick and choose which benefits best fit their circumstances and lifestyles; they feel as if they work for someone who actually cares for their welfare; and they are given the freedom and encouragement to take control of their financial well-being. It has also been suggested that the introduction of a flex plan could even help improve the culture of a workplace.

Their implementation can also be good news for employers and employees when it comes to pensions. With a final salary scheme, of course, companies have little if any control over their funding rates. Extra financial burdens from death benefits or early retirement benefits leave employers having to put their hands in their pockets. But with a flex plan, health insurance and income protection policies can be offered to employees along with a DC scheme, giving a company a new found flexibility.

Rises in the costs of benefits are not a problem either as flexible benefit schemes are reviewed on an annual basis, allowing employers to deal with any unexpected cost increases in whichever way they see fit. If an employer brings in a salary sacrifice flex plan, then the National Insurance savings that are made can be passed back to the employee as a higher contribution to their pension. Equally, it could be used to actually fund the flex plan itself.

With such a package in place, employers can provide their staff with a range of benefits that they can pick and choose to suit their circumstances and lifestyle choices. With more innovative benefits beginning to emerge, such as offers of better mobile phone and holiday rates, companies are increasingly recognising the fruits that come from installing such a scheme. Those who already have a flex plan in place are looking at how to improve and add to the scheme.

Many finance directors have certainly seen the light. Research into flexible benefits consistently points to a growing level of popularity despite the fact that accurately measuring their growth can be problematic and a stable figure has not been forthcoming from the industry. According to thomsons online benefits' 2005 Employee Rewards Watch survey, the number of companies taking on flex plans has doubled in a year. IFA Origen's annual survey, however, recorded only a one per cent rise in companies taking them on.

This is in part due to the actual interpretation of what a flexible benefit scheme actually is. Some companies may be claiming that they have a flexible scheme because it is viewed as a popular feature of what a forward-thinking company can offer a prospective employee. In reality, their definition of flexibility stretches to two or three extra benefits alongside a pension and a life insurance policy.

But such suspicions of scheme misrepresentations prove that flexible benefits are becoming a ‘must-have'. Chris Bruce, director of marketing and technology at thomsons online benefits, believes that the demand that now exists for flex plans can be attributed to three main reasons. Firstly, competitive forces are driving demand. More people actually know what flexible benefits are and how attractive they are to employees.

Secondly, a greater number of people are familiar with the internet: “Things like online banking are here to stay,” he says, “and so as more employees use the internet, setting up their pension online or deciding to trade their holiday online is not a problem. So it's easier for companies to implement and know they're going to get take-up.” Thirdly, the cost involved in setting up flexible benefits has reduced significantly and will continue to drop as long as the market continues to grow.

This point is echoed by Suzi Lowther, head of flexible benefits at Punter Southall. She argues that the flexible benefit market may have seen more growth if it were not for widespread misconceptions over cost: “There is a perception that it is very expensive to set up and administer when actually it isn't. The reason it has this reputation is that when the idea was first launched, it was very expensive, but administration processes and systems have come a long way since then and you can probably set up flex benefits for your employees at a tenth of the cost of when the idea was first introduced to the market.”

The outlay required to introduce flex plans has dropped to such a level that HR departments have begun requesting to run schemes as part of overall cost controlling moves. Ian Colquhoun, head of employee benefits at Winterthur Life, believes this trend will continue as recruitment and retention solution packages are more expensive than a flexible benefits scheme: “It's about the bigger picture. By having these schemes you're attracting and keeping the right people.”

It makes financial sense to gradually introduce a scheme through a platform such as the one offered by thomson online benefits. Called Perquisite, the technology requires no new hardware to be bought by a company and can be configured to work with companies of all sizes. The smallest company using the technology at the moment has 20 employees while the largest, the Ministry of Defence, has a quarter of a million.

Prudential has also developed a technology solution to help modernise staff benefits. In collaboration with IBM and Vebnet, an employee benefits technology solutions provider, the life company has created a system called ‘Pru at Work' that can be plugged into a payroll system which provides the service on a company intranet site. Along with off-line and on-line communication supplied by Prudential, all a company has to do is get their adviser to pick the benefits that will be presented to a workforce.

With the advent of programmes such as Perquisite, medium-sized companies will also be able to enter the flex market. Previously they found themselves squeezed out by the prohibitive prices of the bespoke schemes at one end and the off-the-shelf software package at the other.

As technology develops, the flex plan will become more popular and demand may switch from employers looking for savings to employees looking for the best deals. In a job market where staff move from organisations and careers on a far more regular basis than before, they may well come to expect their benefits package to move with them.

Communication
Putting a flex plan into operation however, is the relatively easy part. For it to do what it's supposed to do - generate tax savings, raise employee job satisfaction levels, and so on - it needs to be promoted.

Jim Aitken, the marketing director at Chase de Vere Employee Benefits, insists that communication is crucial. If employers wish to save money on tax and national insurance then they must ensure that as many employees as possible take up the benefits on offer. Looking at some of the benefits that are linked to tax savings - childcare vouchers, pensions, plans enabling workers to buy home computers and bicycles - then this should not be too arduous a task.

But Aitken warns against complacency: “We begin giving presentations to staff as early as six months before the scheme is brought in. Then they can use their intranet to calculate just how much they will gain from taking up x, y and z benefits. It is a very interactive programme and they can ask questions throughout the initial process. Employers don't want employees getting a salary rise by default.”

“Our communications support helps the employer point out to the employees the fact that there is a need to take greater control of their overall financial well being” adds David Harris, director at Prudential. “It also helps the employer appear more paternal.” He argues that companies need to provide advice and encouragement to workers as “there are too many people in this country putting their heads in the sand and hoping that everything will be OK when they retire.”

With the inherent transparency of flexible benefit schemes, the hope is that staff will become more responsible for their future finances, better motivated and therefore more productive.

It appears that by implementing a flex plan, everyone's a winner.

© Pensions Age October 2005