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April 2004

New research suggests employers waste millions on employee benefits

Employers are wasting more than £2,500 million*every year on benefits for employees who do not value them, according to new research commissioned by leading employee benefits consultancy, thomsons online benefits.

It found that 28 per cent of companies offering employees a standard benefits package felt that the major issue they faced was that benefits weren't sufficiently valued by employees.

The finding was one of a number of insights into the world of employee benefit packages revealed by a study of 746 UK firms. It also found that:

• Flexible benefits were becoming more popular but many employers were still wary of implementing them owing to fears surrounding the cost of implementation and communication difficulties;
• Saving for retirement was increasingly seen as the responsibility of the individual, rather than that of the employer or government;
• Employers expected cost control and changes in employment law to be their two most challenging HR issues in 2004;
• Paper-based administration still dominated employee benefits;
• Almost a quarter of organisations had no benefits scheme of any kind.

The results of the research provide an intriguing snapshot of UK employment trends at a time of low inflation and economic growth, when both manufacturing and white-collar jobs are being lost to competition overseas, particularly in China and India.

The survey found that, in the face of such competition, employers were under considerable pressure to keep costs low while still attracting, retaining and motivating key staff. The fact that benefits can be used as a key weapon in achieving this balance was demonstrated by the finding that employers with no benefits were much more likely to see recruitment and retention as challenges. Nevertheless, the survey suggests that firms with benefits do not always manage them in a cost-effective manner to maximise their return on investment.

Michael Whitfield, managing director of thomsons online benefits, says: "It seems surprising that, at a time when 29 per cent of firms say controlling cost is their major HR issue, that 28 per cent of firms offering standard benefit packages feel their employees undervalue them.

"Clearly there is scope for many companies to think more carefully about what they want from their reward strategy, and then to tailor the packages they offer accordingly."

Whitfield added that an increase in the popularity of flexible benefits could be a sign that more employers were at last looking to increase the effectiveness of their employee benefit spend .

Although only 5 per cent of employers offered such benefits, a further 3 per cent were in the process of introducing them, and a further 9.5 per cent were actively considering their introduction. Only 26 per cent of firms had rejected the idea of flexible benefits.

"If you want to retain an employee who is not interested in free gym membership, then it makes sense to give them the option of a different benefit scheme which they do value," adds Whitfield. "Similarly, there is no point employers paying for benefits which are not taken up or used."

One of the more telling findings of the survey was that almost 40 per cent of respondents used a paper-based system to administer their current or proposed benefits system.

"This is possibly why more firms have not already taken up flexible benefits," says Whitfield. "Certainly we found that time and cost of administration is a worry for those thinking of introducing flexible benefits. But given this need to both control costs and increase employee choice, employers must become more savvy and look at ways of leveraging technology to drive down their administration and communication costs and to build a business case to enable them to put in place more flexible and individually tailored programmes."

Other key findings of the thomsons online benefits survey included:

• Only 7.5 per cent of respondents felt that employers should be solely responsible for ensuring that employees save for their retirement;
• 48 per cent said that this responsibility rested solely with the employee.

The government estimates that as many as 3 million people are not saving enough for their retirement. Whitfield comments "The recently published Simplicity, Security and Choice green paper wants to change this by placing responsibility on employers to provide more information and advice to employees on pensions. We firmly believe that employers and benefit consultants have a shared responsibility to excite, educate and engage employees so that they understand and truly value all their benefits not just their pension.

This new responsibility does not need to be an additional burden on employers if the right communication methods are used. For the last three years we have been giving employees interactive tools which enable them to model how much they need to save to achieve their desired retirement age and income. This has had a dramatic effect on both pension take up and contribution rates".

* Figure derived from Inland Revenue projections for taxable benefits including car, fuel and private medical and dental care only in the period 2001-2002.

Ends

Notes to editors: thomsons online benefits

Contact:

Caroline Shenton
thomsons online benefits
Tel: 020 7808 7588
Email: cs@t-bx.com
www.thomsonsonlinebenefits.com