It is no secret that the key to the success of any business is the quality of its employees. Therefo...
It is no secret that the key to the success of any business is the quality of its employees. Therefore it is important to attract the best staff and to ensure that they do not leave to join direct competitors. One of the most common ways that this can be achieved is by offering a range of employee benefits. Many UK firms now have benefits packages for their employees, ranging from employer-funded group risk schemes through to company cars and gym membership.
But because the number of companies with employee-paid benefits is increasing, companies need to become more innovative in the way that they provide for their staff. Sue Sneddon, employee benefits development manager at Scottish Equitable, says: "It is a very good recruitment and retention tool. Firms are now realising that the workplace culture is changing and they have to compete even more with the packages offered by their competitors. To keep quality staff they have to be more imaginative with their employee benefits."
There are now around 70,000 group risk schemes in place in the UK, covering around six million lives, according to the most recent research from GE Frankona Re, on behalf of GRID (Group Risk Development). However, some industry estimates put the total number of lives covered specifically under a voluntary employee benefit scheme at around 50,000, and so with most of the working population in the UK in the potential market there is still room for significant growth.
Voluntary employee benefit schemes are usually based around a combination of life assurance, income protection and critical illness benefits. The schemes are set up by employers, but it is the employees who pay for the cover on an optional basis. They can be used to offer employees the choice of extra benefits on top of the employer-paid schemes or as a cheap way for an employer to offer a benefits package.
Eugene McCormack, director of marketing at UNUM, says: "It can facilitate the expansion of employee benefits packages. Either as an adjunct to what is already there or as an entry point in the market for those who are dipping their toes into employee benefits."
Schemes can usually be tailored to meet the specific needs of the company and its employees. If a company is planning to introduce new benefits or just extend its existing employee benefits package then IFAs should be able to assist them in finding a plan which best suits their needs. However, it may also be an opportunity to fully address the protection needs of a company. Stephen Harper, managing director at Fountain Independent Financial Management, says: "Companies are just beginning to realise that it can be a good benefit in terms of both recruitment and retention purposes. But we always try to look at the whole picture, rather than just one aspect, and try to sell a company the complete package. Voluntary employee benefits is something that can almost be sold in stages, where the level of benefits increases over time as the company develops, and we then go back to assess their new requirements."
A better deal
There are a number of advantages associated with voluntary benefits such as lower premiums and rapid underwriting, that people buying products on an individual basis would not benefit from. Group risk applications usually mean that members can take advantage of reduced costs, occurring from economies of scale while perhaps getting better rates than they would with an individual policy. Simon Gadd, director (group risk actuarial) at Legal & General, says: "It is usually an easy way to get cover. Employees can often get better terms than if they had individual cover because there are economies of scale that can be reflected in the pricing, because it is assessed on group terms. But also because if it goes through payroll it is more efficient for the insurer."
The application forms also tend to be quicker and simpler than for individual applications, and medical examinations are rarely required. The terms of cover are often based around a more relaxed underwriting procedure, and so employees who may not have received such advantageous rates if they had taken out insurance themselves can still get access to life and health benefits.
Peter Fenner, marketing analyst at GE Frankona Re, says: "The employer, even though they are not paying for the benefits, may well be able to use the size of the workforce as a bargaining tool to obtain better terms than the employees might be able to get elsewhere. So the offer may still be a very appealing one to the employees."
There are other employee benefits packages that allow employees a degree of choice in what protection they want to take out, but the type of scheme largely depends on the needs and the size of the company. Other benefits packages include flexible benefit schemes, which allow employees to have more choice in what benefits they want than with voluntary employee benefits. However, they can prove to be an administrative headache for smaller companies due to all the possible combinations of cover. Sneddon says: "Flexible benefits offer a totally free choice of benefits, which means that they are not really viable for schemes of less than one or two thousand lives. They need a lot of administration because employees can all select different combinations of benefits and keeping track of changes can be difficult."
The main target market for voluntary employee benefit schemes is, therefore, small and medium-sized businesses, because while the employer is still offering a degree of flexibility the choice is often more limited and more manageable.
The single most obvious benefit with voluntary employee benefits for employers is that they are a way of extending the range of benefits the company offers to its employees without having to pay for them. Gadd says: "We have found that the most interest is coming from companies who are already providing some employee benefits and have identified that this is a good way to extend them without too much extra cost."
Stakeholder incentives
The advent of stakeholder pensions in April may provide the ideal opportunity to market these products to clients. From April, employers will have to offer a stakeholder pension and if IFAs are discussing this then it would be logical to discuss voluntary employee benefits as well, because as with stakeholder, the employer will not have to fund benefits.
Nicola Smith, communications manager, employee benefits at Swiss Life, says: "Stakeholder represents a great opportunity to increase sales of voluntary employee benefits. It is maybe something that is not being explored to its full potential at the moment. Stakeholder is an opportunity to discuss voluntary employee benefits with clients and maybe even to revisit the topic."
Sneddon also believes that stakeholder is a logical opportunity for IFAs to discuss other products. She says: "Pension packages and employee benefits are a natural fit. Some IFAs may have already dabbled in employee benefits, but concentrate on pensions and investments because the premiums are much more significant. Although the premiums with employee benefits are lower IFAs have the ability to help their clients to create a more powerful package."
For the IFA, stakeholder and voluntary benefit schemes provide a means of building a large potential client bank quickly, because the products are being marketed to a large number of people all at once. McCormack says: "Stakeholder will facilitate the growth of a new worksite channel. IFAs can disseminate expert advice to groups of people who may not have thought about protection products before. They may benefit from the increased financial sophistication of the employees."
However, while this may represent a good opportunity for IFAs, at a time when other products are becoming harder to sell and less profitable, making sure that the scheme is meeting the needs of all the employees can be quite complicated. Fenner says: "IFAs need to be able to keep accurate records of the scheme so they can provide advice when the employees have opportunities to change their benefits and be aware of exactly who has how much cover at any point in time."
As employers are feeling increasingly pressured to offer their employees a greater range of incentives, voluntary employee benefits may be one affordable solution, and setting up stakeholder pension schemes is the ideal opportunity to broach the question and offer a more complete package. Fenner says: "At the moment the market is new, small, but growing. It could well be given a fillip by the arrival of stakeholder pensions themselves a form of voluntary benefit. If advisers and/or providers are signing people up for pensions, it makes a lot of sense to check out their needs for life and health cover at the same time."
Ben Marquand is a staff writer
