In recent years, flexible employee benefit schemes have been surrounded by hype, with providers prom...
In recent years, flexible employee benefit schemes have been surrounded by hype, with providers promoting them as the reward package for employers and their staff. Enabling employees to select their own benefits and tailor a package to meet their needs rather than those based on the assumption of the employer, flexible schemes are expected to bring staff loyalty and motivation, among a whole host of immeasurable benefits.
Schemes are usually arranged by employee benefit consultants. Once the required benefits have been selected in conjunction with the employer, the consultant brokes the best deal using a range of providers. The consultant will handle the administration and communicate the scheme to the employees. The enormity of the task means that IFAs have traditionally not participated in this area, but this does not mean that lessons cannot be learnt from the emerging market.
Despite the hype, penetration of flex schemes is low. While there is no concrete evidence to confirm take-up, experts suggest there may be any number between 100 and 200 schemes in operation.
But while there is no doubt that take-up has been slow, new research states that flex benefits are beginning to take-off. According to the Industrial Society, the number of employers offering a menu of benefits to staff has doubled in the last four years.
Its report, Managing Best Practice- Flexible Benefits, found that over half the 278 organisations questioned in the survey operated a flexible benefits scheme. The majority of schemes had been introduced to retain staff, while others installed schemes in recognition of their employees' requirements due to competitive pressures and cost effectiveness.
The most commonly offered benefits were life assurance, PMI, company cars and additional holiday. Dental and optical benefits were also popular choices.
Christine Garner, head of organisational development at the Industrial Society, says: "Organisations introduce flexible benefits for a number of reasons. They show that an organisation is forward thinking and they allow employees to choose benefits suitable to their needs. Parents may want to take extra holidays to be with their children. Older people may want extra medical benefits or life assurance, and younger staff may want extra money rather than extra holidays. For employers they are a way of increasing employees' satisfaction as well as attracting the best recruits."
Brian Rawle, employee benefits marketing manager at Scottish Equitable Employee Benefits, has noted this pick up and says it can be attributed to a gradual change in workplace culture.
He says: "Six years ago, there were just 20 schemes in place nationwide. Flexible employee benefits sounded like a great idea. But, it puts the power into the hands of the employee to select their benefits, where previously the employer would have done this."
Unfortunately, the workplace was not quite ready for this degree of employee empowerment. Rawle says: "Companies were disciplined, people were told what to do, and there was a very strong line structure from the top of the company down to the bottom."
Changing cultures
But times have changed. "Today employers pay the people with the right skills to do their job. Employees have been empowered and can take on a lot more," says Rawle.
This staff empowerment has been necessary to help businesses compete and, where skill shortgages are present, to recruit staff.
"To compete in a global market you need a flexible structure. Employees have to take on fresh challenges and this is much harder where you have a disciplined line structure," says Rawle.
This now means that in many organisations there is a shorter management chain and this flexible workplace sits much better with the concept of flexible benefits.
And this culture change is creeping in to the provision of benefits. Roger Dolphin, partner at consultant Watson Wyatt, says: "Increasingly, employees are in control of their own skill and career development and now want benefits to dovetail with their particular needs. Commonly, wealth creation and managing down risks will be high on the personal agenda. Wealth creation can mean personal savings, house purchase, pensions, share ownership and most certainly keeping skills relevant to market demand. Managing down risks is likely to include not only the employee, but maybe a partner, or a whole family unit, and includes interest in insurance protections against death, disability, illness, job loss, mortgage or loan repayment and so on."
But there are a number of factors that have stood in the way of flexible benefits and that have caused existing schemes to trip up.
Rawle says: "Employers need to structure the scheme properly. Schemes have been made too complicated with people putting too many benefits into the scheme. But employees are not 'genned' up on these benefits. What they want from the scheme is security. They do not want to spend hours researching their benefits."
Instead, employers should start with a lower level of benefits and build up on them when the scheme is established. "If you start with too many benefits you may then have to dumb it down later," says Rawle.
Nicola Smith, employee benefits communications manager at Swiss Life, says that the communication of the scheme is also essential. "You need focus groups before the scheme is set up to establish what people actually want. Making the mechanism for choosing benefits simple is also important - this might mean using an intranet site for example. Roadshows from the providers to explain how benefits work can also be useful."
Setting up a flexible scheme is an enormous task, and the market is dominated by employee benefit consultants with the means to not only sell the scheme, but to administer and communicate it to the employees.
The majority of flex schemes have been set up in large companies, with top employee benefit consultants suggesting they can only operate efficiently and effectively in organisations with over 500, or maybe 1,000 employees.
Yet this does not mean small to medium-sized enterprises (SME) do not have the need, or desire, for flexible benefits.
Dolphin says: "Flexible benefits as a formal corporate trading mechanism may not be growing fast as there is substantial resistance to over-engineered and over complicated flex software solutions. However, the demand for flexibility certainly is growing fast. The big trend across the sectors is flexibility and choice, very often utilising existing web-enabled technology, such as corporate intranets and links to providers over the internet."
It is in this SME market that IFAs could carve a niche. Scottish Equitable Employee Benefits recognised this and set up the Employee Protection Menu - a flex scheme for small to medium-sized businesses.
The scheme is purely based around protection, without benefits such as company cars, extra holiday, or childcare vouchers. If these were required they would need to be administered separately.
Instead, the scheme offers life assurance, spouses' life assurance, income protection, critical illness and spouses death in service pension. It has also recently teamed up with BCWA to incorporate private medical insurance into the package.
Rawle says: "Once the employer has chosen the cost of the scheme the employee can look at the package and choose benefits that suit their lifestyle."
Under the Scottish Equitable scheme, employees have a choice of six lifestyle packages to choose from with the protection to meet that lifestyle. They are single with no dependants, single with dependants, working partner with or without dependants and non-working partner with or without dependants.
Employees' requirements that do not meet the prescribed packages can select one that does suit their needs.
All the administration for the scheme is handled by Scottish Equitable via an intranet facility and it will also offer guidance on communicating the scheme to its members. This makes it much easier for the IFA to enter the flex market - all the IFA has to do is sell the package and help employees select their benefits.
As yet Scottish Equitable is the only provider to offer a flexible employee benefit package.
Opportunities for IFAs
But this may not be the only way IFAs can approach the market. Smith says: "There are certainly opportunities for IFAs, particularly those that have not looked at the communication issue," she says. "Employers do not know how to promote the scheme or the benefits purchased. The market may be dominated by the larger employee benefit consultants, but a medium-sized IFA could team up with a communications agency to offer a flex service. The IFA can search for the best deal and then broke it and then say to the client - 'here are the best people to help you make the most of the benefits'."
David Wreford, senior consultant at employee benefit consultant William Mercer, says: "Flex is not all or nothing. It is possible to introduce flexibility around benefits already in place." This might be PMI, the company car, or the pension.
He adds: "Flexibility, for example, can be introduced to the pension scheme through flexibility of contribution and a choice of where the funds are invested."
Ken Richart, group risk manager at Swiss Re, says: "Flexible benefit schemes are a lot of work, but some sort of pick and mix of benefits should be possible. We need to work towards this, but at the moment the correct communication tools and administration systems are not in place. This would create a higher penetration of benefits and give people what they want."
A fully flexible scheme can be expensive, carries a huge administrative burden, and requires high levels of communication, making it less suited to small and medium-sized enterprises as they do not have the infrastructure to cope with the additional workload. But as the demand for flexible remuneration grows, there is no reason why IFAs cannot translate some of its basic concepts into this sector of the market.
Rachel Williams is deputy editor
