Spoilt for choice

We like to think we are responsible adults and we will make decisions which are in the best interests of our families and ourselves. If only life worked out like that when faced with choosing benefits that come with the job, as more people are. However, it is becoming more tempting to act like a child in a sweetshop and pick what looks the biggest, but is not necessarily the best.

Since Margaret Thatcher was at the peak of her power and the cry went up for competition in the name of giving consumers freedom of choice, things have changed. Human nature being what it is, people took the opportunity to make choices, among other things, about their pension and made decisions which, with hindsight, were not as wise as they initially appeared.

The resulting pensions mis-selling scandal and its consequences are still with us today. And there appear to be others to come, notably difficulties over endowment policies ' particularly those sold in the anticipation of repaying a mortgage.

We have to wonder if cries for compensation will always be the consequence of people being given individual choice.

Joining up

In the 'choice' environment, employers are no longer allowed to force employees to join pension schemes, although there now seem to be hints that compulsion might return. Even if this does happen, what sort of scheme will they be compelled to join? Many final salary schemes are disappearing to be replaced with a 'pay in what you like, take your chance on what you get at the end' type of scheme ' that is money purchase schemes.

So what are employers doing in terms of benefits at the moment? Are they obliged to do anything at all, and is it of any value to the employee? Why not simply say that as part of an employee's package, a percentage of salary is included to cover what have previously been seen as benefits. The choice is then left entirely to the employee as to where money is spent ' and this is also a cheaper option for the employer.

But if surveys are to be believed, the last thing we are doing with this money is saving it for our future. Everything points towards a live now, pay later, approach to our finances.

Some employers have seen this happening. Either they have introduced new flexible benefits schemes, or, on taking over another company with entirely different benefits, they have discovered the only way to amalgamate two benefits schemes equitably is to allow employees to choose for themselves what benefits they would like from the same pool of options.

Whatever the reasons, more and more employees find themselves in the peculiar position of being forced to choose between levels of benefits or, worse, between one benefit and another.

In a recent corporate merger, two companies had wildly differing benefits. The differences ranged across pay structures, life assurance, pensions, company cars and many other perks. It was never going to be easy or acceptable to have two colleagues, working side by side for the new organisation comparing their packages.

There was an unacceptable risk that morale would plummet. The pay issue was relatively easily resolved, although the structures were different, those doing similar jobs were on very similar rates.

The problems began when it came to the benefits ' not necessarily in absolute value terms, but rather in the different emphasis within each organisation. The solution was to implement a system which swept away everything giving the new company a fresh start.

Flexible benefits tend to be set up on the basis that each employee is allocated a sum of money, perhaps according to grade or seniority, to spend across a range of items. This will include all those aspects you would expect ' such as pension, life assurance, income protection, car, holidays, childcare, shopping vouchers and so on.

There may or may not be a core level of benefits such as life assurance which is not paid for out of the employee's pot, but is given to every employee across the board.

The main difficulty to be overcome is how to prevent employees using their benefit spend appropriately. There is a huge temptation to spend little or nothing on anything except a car. For single people with no dependants, this might be a perfectly reasonable thing to do. However, for an employee with a partner and possibly a young family as well, it might not be quite so wise.

In control

So how is this controlled without giving the appearance that Big Brother is watching? There is some difficulty in doing this, especially when the reaction could be that not only are we living in a nanny state, but we also work for nanny employers. All the evidence points to the need for some sort of independent advice, also provided by the employer, when it comes to making these difficult choices.

As a nation, we are not thrifty enough ' until we pass the age of 50 or so. Saving is not an option for many and we don't put enough aside for retirement. So what should be done? Should people be left to their own devices?

A similar debate rages in other areas such as long term care as well. Why should careful, hard-working people who have saved a small nest-egg and bought a house be penalised for doing so by being forced to sell up when others will get saved from disaster by the State safety net?

Striking the right chord

A balance has to be struck between prescribed benefits and choice. What is right for one will not be right for all. But that should not mean employers, who do have at least some responsibility for the welfare of their workforce, should be allowed to shake off that responsibility.

By leaving employees to make choices on benefits by themselves, perhaps without adequate advice, employers could be accused of washing their hands of the problem and this could even be a future compensation scandal.

Perhaps those who believe they should be entirely free to make their own choices will resent the intrusion of having choices made for them. However, rather that than some employees and their dependants not being properly provided for simply in the name of freedom of choice.

Bob Bowskill is underwriting and affinities director at Sun Life Financial of Canada