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APRIL 2012
RESEARCH l 2012
FLEXIBLE BENEFITS
Sponsored by
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SPONSOR’S COMMENT
Flexible thinking is required
Paul Brown, senior consultant at Towers Watson, calls on employers to make the most of flexible benefits as the economic challenges continue
With the euro crisis continuing to hit the headlines and the UK economy threatening to slide back into recession, there seems no end to the economic gloom. Unless employees are being paid guaranteed bonuses for their ‘Olympic’ efforts this summer, their reward is likely to be little changed from last year and the prospects for pay reviews in the short term look equally poor. The picture worsens when you consider an employee’s disposable income, with the increased tax burden and relatively high inflation further eroding people’s capacity to spend. So now, more than ever, it is important to realise the full potential of employee benefits to engage staff and offer them value. To help counter the effects of low pay awards, organisations and their employees can gain value from benefits in various ways. Salary sacrifice can deliver income tax and national insurance savings and, at a time of increased payroll taxes, these savings can be even greater. There is also greater value to the employee from the better terms and discounts available when selecting employer-provided group benefits rather than individual arrangements. You might expect participation in flexible benefits to fall during a period of low pay inflation, but Towers Watson’s experience shows that, for most employers, take-up of benefits is consistent with previous years or, indeed, continues to rise. In part, this is because many staff see traditional flexible benefits such as pension, childcare vouchers, healthcare plans and critical illness insurance as essentials that are provided most efficiently through their employer’s benefits. It is still common within a mature flex plan to see more than half of employees making active
choices each year as long as the plan is designed to keep pace with their needs and expectations. It is also important to continue communicating benefits because this investment is directly related to take-up rates and wider employee engagement levels. To get the highest employee appreciation and so the greatest perceived value from benefit plans, it is important to promote them and provide appropriate education tools. So when employers look to review their plans in 2012, they need to consider the employee experience as well as the list of benefits available. Exploiting new technologies, such as social media and viral messaging, can give new life to a traditional benefit communication campaign. At a more strategic level, organisations are starting to position their benefit plans for future growth. For some, this means rationalising multiple sets of benefit entitlements, consolidating providers or introducing flexible benefits to help accommodate future acquisitions. For others, it is a segmentation exercise to address particular employee hotspots, such as retaining experienced workers, attracting particular skillsets or planning to fill future career paths when there could be a shortage of experienced graduates in a few years’ time. Finally, employers face a challenge to keep up with legislation changes. There is a great deal of focus right now on automatic enrolment to pensions, with the new legislation beginning to take effect later this year. Most of the demands the pension reforms bring are on record-keeping and tracking each employee’s status. Naturally, a benefits administration system will have a role to play in monitoring and tracking eligibility, communicating the necessary pension plan details and even performing any transactions, such as opt-outs or contribution choices.
To find out more, visit: www.towerswatson.com
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A P R I L 2 012
employee benefits/towers watson flexible benefits research 2012
03
Contents Editor’s comment
Research Key findings
5
Data in context: Survey highlights and details on our respondents
Attitudes
history due to begin taking effect from October this year, it is perhaps unsurprising that many employers are currently
6
giving priority to planning how they will comply. As their staging dates for auto-enrolment draw nearer, it
Value for money: Focus on tax-efficient benefits and flex promotion
Structure
With one of the biggest pensions changes for in recent
has become increasingly clear to many how the reforms will
10
Wider appeal: More flex schemes are being made available to staff overseas
affect other benefits and reward systems in an organisation. Flexible benefits are no exception, with some employers looking at how they can utilise their flex schemes to help manage the changes. This year, the proportion of respondents that say they do not know how they will
Benefits on offer
13
Multiple choice: The number of benefits on offer under flex is increasing
adapt flex schemes to accommodate pensions auto-enrolment has fallen from just under one-third to 13%. Some 18% will use their flex system for record-keeping and auditing, and the same percentage plan to use it to manage opt-outs. In
Tax-efficient benefits
17
Bottom line: Tax and NI savings remain a strong draw in tough economic times
addition, 14% aim to manage auto-enrolment through the annual flex renewal process, and a similar number will use the flex system for ongoing tracking of eligibility groups. It will be interesting to see how many other employers adapt
Legislation
19
Extra duties: How flex schemes are adapting to cope with pensions auto-enrolment
benefits schemes to manage their new obligations under the reforms. As always, we have carried out a prize draw among our respondents. This time, Maria Padley, compensation and benefits manager at Getronics UK, is the lucky
Administration
20
Burden shared: More employers turn to outsourcing as complexity increases
Alternatives to flex Efficient option: Standalone tax-efficient benefits are still popular with employers
winner of £100-worth of Marks and Spencer vouchers. Debbie Lovewell, Deputy Editor
23 Editor Debi O’Donovan, deputy editor Debbie Lovewell, data analyst Michael Marshall, features editors Tynan Barton, Clare Bettelley, senior reporter Nicola Sullivan, reporter Jennifer Paterson, art director Deborah George, sub-editor Bob Wells, group production manager Wendy Goodbun, commercial director Suzanne Saunders, business development director Hamish Scott, senior account manager Peter York, group publisher Phil Hayne, publishing assistant Alice Gerard-Pearce, cover photography Jacko Employee Benefits Wells Point, 79 Wells Street, London, W1T 3QN Tel 020 7970 4000, Subscriptions 020 7292 3719 Email
[email protected] Website www.employeebenefits.co.uk
Sponsored by
Employee Benefits accepts no responsibility for loss or damage to material submitted for publication. Copyright Centaur Media plc. All rights reserved. No part may be reproduced in any form without written permission of the publisher. Employee Benefits is published by Centaur Media plc, the UK’s premier independent business publisher. For information about the range of products produced by Centaur, visit www.centaur.co.uk. The site contains details of vacancies at Centaur. You can subscribe online to Employee Benefits at http://sales.centaur.co.uk.12-month subscription: UK £67; Europe & USA £83; Rest of world £105. ISSN 1366-8722
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SECTION I
employee benefits/towers watson flexible benefits research 2012
05
Key findings This survey, carried out in January 2012, is based on 310 responses from Employee Benefits’ readers and users of www.employeebenefits.co.uk
I How many employees are in
I Which sector respondents
respondents’ organisations
KEY FINDINGS
operate in 3%
9% 16%
13%
10%
23%
61% 32%
believe a flex scheme reinforces the concept of total reward
37%
believe flex schemes will become integrated into wider total reward platforms
18%
plan to use the flex system to manage the opt-out process following pensions auto-enrolment
49% 16% 78%
offer all employees access to the same flex scheme
85% 56%
offer tax-efficient benefits through flex
83% 86% 51%
cite technology as the biggest annual cost in their flex scheme
16% 68%
found in an annual flex review meeting that employee take-up was not as high as expected
15%
27%
I Fewer than 100
I 1,001–5,000
I Privately owned
I Public sector
I 100–500
I 5,001-10,000
I Publicly quoted
I Voluntary sector
I 501–1,000
I More than 10,000
Sample: All respondents
Sample: All respondents
I The type of flexible benefits
I The industries in which private
scheme offered
sector respondents operate
A formalised plan that is communicated to staff as a whole and run for a set period of time 36%
Financial services
28%
Professional services
17%
Employers do not offer flex, but do offer tax-efficient benefits through salary sacrifice 17%
Manufacturing
9%
Technology/telecommunications
9%
Tax-efficient benefits through salary sacrifice (promoted as part of a cohesive flex package) 14%
Media
5%
Service (excluding public sector)
5%
Employers do not offer flex, but are currently considering doing so 13%
Retail
4%
Building and construction
3%
Employers do not offer flex, but a plan is currently being designed
Pharmaceuticals
3%
7%
Utilities
2%
The idea of offering flex has been rejected
7%
Leisure
2%
Introducing flex has never been considered
7%
Transportation
2%
Healthcare
1%
Sample: All respondents
Sample: All respondents
offer flex to staff based outside of the UK of employees aged 16-34 are likely to trade down benefits or use their flex pot to increase salary
use savings from tax- or national insurance-efficient benefits to fund the flex scheme
measure the success of their scheme by employee take-up rates of employers without a flex scheme offer voluntary benefits
For more benefits research, visit: www.employeebenefits/research
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06 S E C T I O N I I
employee benefits/towers watson flexible benefits research 2012
Attitudes Many employers expect to focus on tax-efficient benefits and better promotion of flex in the year ahead as the economy continues to struggle, says Tynan Barton
I How a flexible benefits scheme adds value to a business It enables employees to tailor their benefits package to suit their needs or lifestyles
83%
It recognises the diverse needs and values of the workforce
79%
It promotes employee understanding/appreciation of benefits
71%
It reinforces the concept of total reward
61%
It makes the most of tax and/or national insurance (NI) breaks
61%
It promotes employee understanding of the cash value of benefits
57%
It helps improve retention
55%
It helps improve recruitment
54%
It helps organisations to remain competitive
53%
It helps organisations to differentiate themselves as an employer of choice
52%
It helps improve motivation
45%
It helps improve employee engagement (ie willingness to go the extra mile)
45%
It helps reduce/control costs
43%
It reinforces corporate culture/objectives
39%
It assists with harmonising benefits and/or integration of businesses
34%
It helps organisations deal with the effects of tax changes
13%
It helps employers manage costs around age-related insurances
12%
Sample: All respondents (310)
I The barriers to implementing a flexible benefits scheme Cost of implementation
63%
Cost of flexible benefits platforms
52%
Cost of administration
51%
Complexity of administration
49%
Getting approval for the business case
45%
Updating existing technology (eg HR or payroll systems)
34%
Potential removal of tax breaks by HM Treasury/HM Revenue and Customs
26%
Impact on internal HR and processes
25%
Lack of employee interest
25%
It is confusing/difficult for staff to make informed decisions
21%
Not enough benefits that can be flexed
20%
Internal staffing resourcing constraints
18%
Amending staff contracts
17%
Integrating with current benefits (eg different contract periods)
16%
National insurance (NI) and tax issues
12%
Finding providers for the different benefits
11%
It does not suit the organisation Sample: All respondents (308)
9%
Most respondents believe a flexible benefits scheme adds value to a business by enabling staff to choose perks that best suit their lifestyles and needs. Many employers also see that flex recognises the diverse needs of a workforce and can promote understanding and appreciation of benefits. For the past three years, these have been cited as the main advantages of running a flex plan. In 2008, recognition of the needs and values of employees held a clear lead (81%) over issues such as making the most of tax breaks (41%), a factor that was cited by 61% of respondents this year. But despite the value flex can add by meeting employees’ needs, cost has always been seen as a barrier to introducing a scheme. This year, implementation, platform and administration costs are ranked as the top three obstacles to implementing a flex scheme. The proportion of employers that cite the cost of flexible benefits platforms as a barrier has increased over recent years, suggesting a lack of, or a tighter control of, the budget for flex. Employers spend the biggest proportion of their flex budget on technology and administration (see page 21). Getting approval for the business case for implementing flex remains a problem for employers, always ranking near the top of the list. Some 45% of respondents cited this as a main barrier this year, which is similar to the 48% that said it was a issue in 2011 and 47% in 2010.
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SECTION II
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07
I Key lessons learnt by respondents from flexible benefits annual review meeting Communications were not targeted enough
37%
Employee take-up was not as high as expected
32%
Employee participation in roadshows was not as high as expected
29%
Problems with the quality of HR data
19%
Benefits providers did not fulfil their expected roles/requirements
16%
The flex system was not user-friendly enough
12%
Other
9%
No issues were raised with the flex scheme
7%
Too many calls were received by the helpdesk
4%
Sample: All respondents that offer a flexible benefits scheme (101)
I What flexible benefits schemes have been effective in achieving Making the most of tax and national insurance breaks
66%
Recognising the diverse needs and values of the workforce
55%
Promoting employee understanding of the cash value of benefits
53%
Promoting employee understanding/appreciation of benefits
53%
Improving recruitment
49%
Reinforcing the concept of total reward
47%
Improving retention
46%
Improving staff motivation/engagement
41%
Reducing/containing the cost of reward
41%
Helping the organisation to remain competitive
40%
Becoming an employer of choice
40%
Harmonising benefits/assisting with the integration of businesses
38%
Improving staff engagement
37%
Improving the image of the organisation
35%
Reinforcing company culture/objectives
31%
Removing/reducing status symbols/hierarchy
12%
Not effective in any of the above
1%
Sample: All respondents that offer a flexible benefits scheme (99)
As in previous years, around two-thirds of respondents (66%) believe flexible benefits scheme are most effective in making the most of benefits that carry tax or national insurance (NI) breaks. This reason was cited by 64% of respondents in both 2011 and 2010. In 2009, however, the top achievement of flex, as cited by 60% of employers, was the fact that it promoted employee understanding and appreciation of benefits. This
factor appears in fourth place this year, cited by 53%. Holding an annual flex review meeting is essential in order to find out if a scheme is meeting employee expectations as well as the employer’s objectives. According to respondents, the main lessons they learnt from their last such meeting was that communications were not targeted enough and that employee take-up was not as high as expected.
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08 S E C T I O N I I
employee benefits/towers watson flexible benefits research 2012
I What respondents believe the future holds for flexible benefits schemes I They will become integrated into corporate wrap products to offer increased flexibility
13%
I They will become integrated into wider total reward platforms
34%
I They will be replaced by comprehensive voluntary and tax-efficient benefits schemes offering greater flexibility 37% 16%
The world of communication has undergone great development in recent years, with social and mobile media growing in prominence. But when it comes to communicating flexible benefits schemes to employees, the more established methods remain popular. Newer forms of media are also being used in some organisations, with 5% of respondents using social media, such as Twitter and Facebook, to communicate flex and 16% using podcasts, online videos or webcasts. It will be interesting to see how this trend develops over the next few years.
I They will broadly remain as they are for the foreseeable future Sample: All respondents that offer a flexible benefits scheme (101)
Employers appear undecided about what the future holds for flex. While 34% of respondents believe schemes will broadly remain as they are, 13% think flex will become integrated into corporate wrap products. These statistics are similar to last year’s, suggesting perhaps that the corporate wrap market has some more evolving to do to have a greater effect on this marketplace. Many employers (37%) believe flex schemes will become integrated into wider total reward platforms, a trend that has been prominent in recent years. This differs little from 2011, when 38% thought this was a viable possibility.
I How respondents communicate their flexible benefits scheme to staff In offer letter/starter pack for new joiners
80%
Written details of package are on intranet or internet
75%
Online benefits portal
75%
Leaflet/booklet/brochure
71%
By email alerts
68%
Total reward/remuneration statements
52%
Through presentations/workshops run by the employer
45%
Benefits modelling is available on intranet or internet
40%
At induction meeting for new joiners
37%
Through line managers
31%
In regular company newsletter/magazine
28%
Through presentations/workshops run by advisers/providers
28%
Annual review meeting/seminar
19%
Podcasts/online videos/webcasts
16%
Social media (such as Twitter and Facebook)
5%
DVDs
1%
Other
2%
Source: All respondents that offer a flexible benefits scheme (98)
For more benefits research, visit: www.employeebenefits/research
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10 S E C T I O N I I I
employee benefits/towers watson flexible benefits research 2012
Structure More employers are extending flex to staff based overseas, and younger employees are more likely to want to trade their benefits down for cash, says Tynan Barton
How respondents structure their flexible benefits schemes
Who respondents offer their flexible benefits scheme to 3%
4% 7%
8%
1% 2%
11% 36%
14% 49%
14%
20% 26%
Employees can opt to take tax-efficient benefits through salary sacrifice
The whole workforce receives access to the same scheme
Employees do not get a flex pot to spend, but can trade up or down from their current package
The whole workforce, but the scheme is structured differently for different groups of staff
Employees are given a flex pot equal to the value of a core benefits package Employees are given a flex pot of a percentage of salary and/or cash amount Employees are given a flex pot in addition to equivalent core benefits offered Employees receive flexible pay, which includes the value of benefits, that they can spend subject to purchasing certain minimum benefits Sample: All respondents that offer a flexible benefits scheme (137)
Permanent employees only Salaried employees only Specific employee grades Management employees only Head office employees only Sample: All respondents that offer a flexible benefits scheme (137)
The structure of flexible benefits schemes has remained largely unchanged over the years. Back in 2009, the most common way that schemes were structured was by enabling staff to take tax-efficient benefits through salary sacrifice. This again tops the list this year. However, in 2010 and 2011, the main way schemes were structured was for employees to be able to trade up or down from their current benefits package, which is cited by 26% of employers this year. This suggests employers believe flex is most effective in offering benefits that bring tax breaks for staff, making their money go a little further. Unlike some benefits, flex is not the preserve of senior employees. Almost half (49%) of this year’s respondents offer all employees access to the same scheme. One-fifth (20%) offer flex to the whole workforce, but structure it differently for different employee groups. A further 14% restrict it to permanent employees, while 8% offer it only to salaried staff. More employers are also looking to offer flex to staff based outside the UK. This year, 16% said they offer a plan in other regions, compared with 11% in 2011. Of these, all offer plans in Europe (outside of the UK), 73% offer flex in Asia Pacific, 63% in Australasia, 73% in the US and Canada. Only 33% offer flex in Africa, but 67% are considering doing so for this region. This shift towards international flexible benefits plans may be due to the increasing globalisation of business, with organisations looking to replicate or offer similar benefits in different locations.
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SECTION III
employee benefits/towers watson flexible benefits research 2012
Proportion of staff that made changes to package at the last flex enrolment period
Employee group most likely to trade down benefits or use flex pot to increase salary
2% 10%
2%
7%
4%
3%
5% 18%
10% 15% 11% 14% 4%
78%
8% 12%
None
51-60%
Younger employees (16 to 34-year-olds)
Less than 10%
61-70%
Middle-aged employees (35 to 54-year-olds)
10-20%
71-80%
Staff approaching retirement
21-30%
81-90%
31-40%
91-100%
Staff working beyond the traditional retirement age
41-50%º
Don’t know
Sample: All respondents that offer a flexible benefits scheme and allow staff to flex down cover levels (63)
11
Although employers allow staff to flex down cover on many of the benefits offered through flexible benefits schemes, many ensure that employees must take a minimum level of cover on some, primarily group risk, perks, which is unsurprising given the support and security these benefits offer staff. Just over half (51%) of respondents specify that staff must take a minimum level of cover on life assurance, and 28% on group income protection. However, 23% of employers do allow staff to flex down cover on life assurance and take cash instead. Just over half (52%) allow staff to flex down cover on holiday, while 30% do not offer employees the facility to flex down cover in exchange for cash. Younger employees, in the 16-to-34 age group, are more likely to trade down benefits or use their flex pot to increase salary. This reflects the differing priorities at employees’ different life stages. The younger age group will typically earn less and have higher levels of debt, while older staff may perhaps have more complex financial matters.
Sample: All respondents that offer a flexible benefits scheme (105)
Proportion of employers that specify staff must
Proportion of respondents that allow staff to flex
take a minimum level of benefits cover in flex
down cover on some benefits and take cash
On life assurance
51%
On holiday
No minimum cover specified
34%
Employees cannot take cash
30%
On group income protection
28%
On life assurance
23%
On annual leave above statutory minimum
26%
On private medical insurance
19%
On private medical insurance
20%
On income protection
12%
On pension contributions
18%
On employer pension contributions
11%
On unused flex allowance
11%
On critical illness cover Sample: All respondents that offer a flexible benefits scheme (105)
8%
52%
Employer is considering offering
6%
On other benefits
5%
On critical illness insurance
2%
Sample: All respondents that offer a flexible benefits scheme (105)
For more benefits research, visit: www.employeebenefits/research
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SECTION IV
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13
Benefits on offer The number of benefits employers offer through flex is increasing, and childcare vouchers continue to top the table for popularity, says Tynan Barton
I The benefits or communications employers offered as a precursor to flexible benefits Voluntary benefits
48%
Standalone tax-efficient benefits via salary sacrifice
36%
Total reward statements
34%
None offered
28%
Sample: All respondents that offer a flexible benefits scheme (137)
I Number of benefits appearing on respondents’ lists of flex choices Fewer than 5
6%
5-10
33%
11-15
35%
16-20
21%
More than 20
4%
Offering a voluntary benefits plan or tax-efficient benefits through salary sacrifice arrangements remain the most popular precursors to introducing a flexible benefits scheme. In providing flex, employers must strike a balance between ensuring they offer sufficient choice without making it overwhelming. The number of benefits offered through flex has remained constant over the past couple of years, with 11 to 15 being the most common number, offered by 35% of employers this year. In 2010, 37% offered this number, and 39% did so in 2011. More employers appear to recognise the importance of offering choice, with the proportion offering fewer than five flex benefits falling to 6% this year, compared with 10% in 2011 and 12% in 2008.
Sample: All respondents that offer a flexible benefits scheme (99)
I Benefits offered through flex that have increased in cost in the past 12 months Private medical insurance (PMI) for employee only
51%
Hospital/health cash plan
15%
Dental insurance
50%
Gym membership
11%
Private medical insurance (PMI) for partners of staff
46%
Personal accident insurance for employee only
11%
Health screening for employee
32%
Personal accident insurance for partners of staff
11%
Critical illness insurance for employee only
31%
Childcare vouchers
10%
Life insurance for employee only
27%
None
10%
Critical illness insurance for partners of staff
25%
Season-ticket loan
7%
Health screening for partners of staff
24%
Group personal pension (GPP) scheme
6%
Group income protection
22%
Defined benefit pension (final salary or career average)
5%
Bicycles/bicycle loans
19%
Defined contribution (money purchase) pension
4%
Life insurance for partners of staff
16%
Stakeholder pension scheme
4%
Sample: All respondents that offer a flexible benefits scheme (109)
seen the cost of PMI increase over the past 12 months. The same can be said for dental insurance, as stated by 50% of respondents that offer this perk through flex, because access to NHS dentistry can be challenging. However, only 15% of employers report a cost increase in hospital or health cash plans, through which dental benefits can be accessed.
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With speculation that NHS waiting lists for non-urgent treatment could grow beyond 18 weeks, employers appear to recognise that private medical insurance (PMI) can greatly reduce the amount of time an employee is away from the office. However, medical inflation is pushing up insurance premiums, which is reflected in the 51% of employers that have
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14 S E C T I O N I V
employee benefits/towers watson flexible benefits research 2012
I Benefits employers offer through flexible benefits schemes Childcare vouchers
94%
Dining card, for example Taste or Gourmet card
25%
Buy/sell some annual holiday leave
91%
Stakeholder pension
24%
Dental insurance
89%
Financial advice/counselling/education
22%
Private medical insurance (PMI) for employee only
87%
Bonus
19%
Life insurance for employee only
84%
Defined benefit pension (final salary or career average)
19%
Private medical insurance for partners of staff
82%
Legal advice/counselling
19%
Bicycles/bicycle loans
80%
Training and development
19%
Critical illness insurance for employee only
78%
Carbon credits/offsetting
15%
Health screening for employee
77%
Motor breakdown cover
14%
Critical illness insurance for partners of staff
69%
Staff accounts (eg learning, wellbeing)
14%
Travel insurance
61%
Hybrid DB/DC pension scheme
13%
Give-as-you-earn/payroll giving
60%
Subscriptions (publications)
13%
Hospital/health cash plan
59%
Sharesave/SAYE scheme
13%
Health screening for partners of staff
57%
Car parking
12%
Group income protection
56%
Computers for home
10%
Group personal pension (GPP)
56%
Mobile phone – discounted handsets
10%
Life insurance for partners of staff
55%
Wine
10%
Personal accident insurance for employee only
53%
Cinema tickets
9%
Additional voluntary pension contributions
48%
Pension for dependants
9%
Paper leisure/retail vouchers
44%
Share incentive scheme (Sip)
8%
Gym membership
43%
Will writing service
7%
Reloadable leisure/retail card
43%
Group self-invested personal pension (Sipp)
7%
Personal accident insurance for partners of staff
41%
Motor insurance
6%
Defined contribution pension (money purchase)
37%
Corporate individual savings account (Isa)
6%
Season-ticket loan
34%
Identity theft protection
6%
Alternative to cars (cash, hire, Ecop, leasing arrangement and so on)
29%
Home insurance
5%
Online leisure/retail vouchers account
28%
Pet insurance
4%
Company cars
27%
Concierge service
4%
Optical care/vouchers
27%
Private fuel
4%
Sample: All respondents that offer a flexible benefits scheme (131)
The proportion of employers offering private medical insurance has fluctuated, rising to 87% this year from 83% in 2011, but down from 90% in 2010. This indicates employers’ recognition that although PMI is a costly perk, it can benefit both employees and organisations. Other benefits that address staff health and wellbeing are also increasing in popularity through flex, with critical illness insurance now offered by 78%
of employers and health screening by 77%. The benefits offered through flex have changed little in the past five years. Childcare vouchers have topped the table since 2008, reinforcing the view that flex can be crucial in supporting employees’ lifestyles. Back in 2002, however, the most common benefit offered through flex was a season ticket loan, a perk offered by 34% of respondents this year.
For more benefits research, visit: www.employeebenefits/research
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SECTION V
employee benefits/towers watson flexible benefits research 2012
17
Tax-efficient benefits Changes in tax legislation have made employers more wary about certain benefits, but any tax and NI savings are a strong draw in straitened times, says Tynan Barton
I Tax-efficient benefits offered through flexible benefits schemes Childcare vouchers
97%
Bikes-for-work scheme
81%
Pensions
81%
Group income protection
31%
Car
15%
Mobile phones
7%
Car parking
5%
Other
7%
Sample: All respondents that offer tax/NI-efficient benefits through a flexible benefits scheme (86)
I How employers use the savings from tax/NI-efficient benefits To fund the flexible benefits scheme
56%
Savings are shared with employees
34%
To save money for the business
34%
To fund additional pension contributions
12%
To fund other initiatives within the business
9%
To fund benefits outside the flex scheme
8%
To fund other HR initiatives
6%
Do not use them
2%
Some 85% of employers offer tax-efficient benefits through flex, a small drop from the 90% that did so in 2011. In 2008, this figure stood at 88%. Since then, there has been a rise in the percentage of employers offering bikes for work and pensions through flex, increasing from 66% and 65%, respectively, to 81%. Childcare vouchers remain one of the most popular tax-efficient perks to be offered through flex. But changes to childcare voucher legislation last year mean that only basic-rate taxpayers receive tax and national insurance (NI) relief on up to £55 a week in vouchers. This is restricted to £28 a week for 40% taxpayers and £22 for 50% taxpayers. Meanwhile, changes that came into force on 1 January now see VAT imposed on benefits offered via salary sacrifice, including bikes for work, car parking, computers and gym membership. Where employers have made savings by offering benefits with tax or NI breaks, more than half put these back into their flex scheme, and 34% share them with staff. Only 2% of respondents said they do not use the savings, a figure that has declined from 31% in 2008.
Sample: All respondents that offer tax/NI-efficient benefits through a flexible benefits scheme (86)
Offering tax- and NI-efficient benefits through flex is popular, but many employers (45%) are cautious about introducing new perks that may be affected by possible tax changes, and 10% would withdraw affected benefits from their flex scheme. However, this is a slight improvement on last year’s figures, suggesting growing confidence that the government will not make any major changes affecting these perks in the near future.
I How employers think speculation about tax changes affects flex Speculation about the withdrawal of tax breaks makes employers cautious about introducing affected benefits to flex schemes
45%
Employer does not act on speculation
15%
Speculation about the withdrawal of tax breaks causes employers to consider withdrawing flex schemes
14%
Speculation about tax changes causes employers to consider introducing flex
10%
Speculation about tax changes causes employers to withdraw affected benefits from flex schemes
10%
Speculation about tax changes causes employers to introduce affected benefits to flex schemes Sample: All respondents (307)
For more benefits research, visit: www.employeebenefits/research
3%
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Impact of legislation Employers are finally coming to grips with how to adapt their flexible benefits systems to accommodate the arrival of pensions auto-enrolment, says Tynan Barton
How employers will adapt flexible benefits schemes to accommodate pensions auto-enrolment They intend to manage auto-enrolment entirely separately from flex
21%
They will manage the opt-out process using the flex system
18%
They will use the flex system for record-keeping and auditing
18%
They will increase the minimum pension contribution level to meet the minimum contribution requirements
16%
They will manage auto-enrolment during the flex year
16%
They will manage auto-enrolment through the annual flex renewal process
14%
They will use the flex system for the ongoing tracking of eligibility groups
14%
They will use the flex system to manage additional reporting requirements
13%
They do not know
13%
They will use the flex system to target communication to specific eligibility groups
10%
They will increase the company pension funding and/or flex allowance to meet the minimum contribution requirements
8%
They will remove the cash alternative to pension option
5%
Sample: All respondents (303)
The introduction of auto-enrolment from this October will see many employees enter a pension scheme for the first time, with both employers and employees making compulsory contributions. Back in 2008, 39% of respondents did not know how the pension reforms would affect the way they viewed flexible benefits, but only 3% were deterred from introducing flex because of the reforms. In 2011, 31% of respondents still did not know how the reforms would change their view of flex, but this year many have planned how to adapt their schemes for auto-enrolment, and only 13% do not know what they will do. This year will also see the reduction of the lifetime pensions allowance from £1.8 million to £1.5 million from 6 April 2012. Almost 80% of employers have not considered using flex to provide alternatives for affected staff.
Are respondents considering using flexible benefits to help deal with high earners’ tax changes?
4%
They are not
4% 3%
Yes, to offer defined contribution (DC) pension benefits as an alternative to DB pension arrangements
5% 5%
Yes, to offer a cash-back alternative
5%
Yes, to offer other benefits as an alternative to pension contributions
79%
Yes, to offer alternative defined benefit (DB) arrangements (eg a lower accrual rate) Yes, to offer a corporate individual savings account (Isa) Other
Sample: All respondents that offer a flexible benefits scheme (102)
For more benefits research, visit: www.employeebenefits/research
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Administration As the complexity of flexible benefits schemes increases, a growing number of employers are fully or partly outsourcing plan administration, says Tynan Barton
I How employers administer their flexible benefits scheme
I Proportion of employers that have service level agreements with benefits providers
9% 13% 29%
14%
56%
31% 24% 25%
I Partly in-house, partly outsourced I Fully outsourced
I Yes, with all providers
I Fully in-house
I Yes, with some providers
I They outsource technology
I No
I They outsource the day-to-day administration Sample: All respondents that offer a flexible benefits scheme (98)
Sample: All respondents that offer a flexible benefits scheme and have service level agreements in place (98)
I Proportion of employers that use a third party for
Implementing a flex scheme can be a huge administrative task, so responsibilities are often split between in-house and outsourced resources. This year, it is an almost even divide, but the number of employers taking on the full task themselves continues to decline. Back in 2008, 44% of employers handled their scheme in-house and 18% fully outsourced, and in 2006, 58% handled their scheme internally. A large majority of respondents (87%) have service level agreements in place with all or some providers, ensuring a common understanding of how benefits should be provided. The way in which employers use consultants has changed over the years. In 2008, consultants were used mainly for scheme design, provider selection and administration. But it is now increasingly popular to use a consultant for communication, as cited by 50% of respondents that use a consultancy firm this year, compared with 36% in 2008. This highlights the importance of boosting staff awareness.
I What employers use a consultant for
any aspect of their flexible benefits scheme Design
67%
59%
Provider selection
67%
35%
Scheme communication
50%
They use a consultancy firm
18%
Legal aspects
44%
They use an independent financial adviser
13%
Tax approval
39%
They do not use a third party
11%
Administration
33%
Building the business case
17%
Other
11%
They use a flexible benefits provider They use a technology systems provider
They use an accountancy firm for tax advice Sample: All respondents that offer a flexible benefits scheme and use a third party (98)
7%
Sample: All respondents that offer a flexible benefits scheme and use a consultant (18)
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SECTION VII
employee benefits/towers watson flexible benefits research 2012
I Cost of running a scheme per employee per year (including cost of internal resources)
15% 27% 13%
21
I What the annual costs of flexible benefits cover Technology
83%
Administration
82%
Helpline
59%
Design of scheme
57%
Communication
57%
Project management
52%
Tax approval
25%
Other
7%
Sample: All respondents that offer a flexible benefits scheme (98)
11%
14%
6%
13%
I £10 or less
I £21-£25
I £30 or over
I £11-£15
I £26-£29
I Do not know
I £16-£20 Sample: All respondents that offer a flexible benefits scheme (98)
The proportion of employers that claim not to know how much their flexible benefits scheme costs to run each year has fluctuated somewhat over the years. In 2009, 40% said they did not know, while last year, 31% said this was the case. This is perhaps surprising given many organisations’ continuing focus on costs. Where employers do know how much their scheme costs to run, the most common figure has remained at £10 or less per employee per year over the past three years. Technology and administration remain the most costly aspects of running a flexible benefits scheme, as has been the case since 2009.
I What factors employers use to measure the success of their flexible benefits scheme Employee take-up rates
86%
Employee satisfaction with the scheme
61%
Level of NI savings for the employer
53%
Employee understanding of the value of benefits
34%
Level of tax/NI savings for employees
33%
Impact on employee engagement
27%
Impact on recruitment
16%
Impact on retention
10%
Sample: All respondents that offer a flexible benefits scheme and measure its success (77)
I How employers capture this information Employee surveys
70%
Data provided by flexible benefits provider
69%
Other HR/business data
36%
Leaver exit interviews
22%
Employee focus groups
18%
Sample: All respondents that offer a flexible benefits scheme and measure its success (77)
More than three-quarters (79%) of respondents measure the success of their flex scheme. Employee take-up rates continue to rank as the top factor in judging a scheme’s success, having replaced employee satisfaction, which was cited as the top reason in 2009 and 2010. Among the 21% of employers that do not measure the success of their scheme, lack of time (38%) and lack of resources (33%) are the most common reasons given for this decision. A further 33% of this group intend to begin measuring flex success in the next 12 months.
For more benefits research, visit: www.employeebenefits/research
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SECTION VIII
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23
Alternatives to flex Employers continue to be keen on standalone tax-efficient benefits, and interest is growing in total reward statements for employees, says Tynan Barton
I Whether employers without flexible benefits have considered offering it Yes, but the timing was not right for them to do so
16%
No, they do not have enough benefits to flex
16%
No, but they will consider doing so in the future
15%
Yes, but it wasn’t considered right for their organisation
10%
No, but they are looking to do so within the next 12 months
8%
Yes, but they were unable to gain board approval
7%
Yes, but it was not considered a viable option during the recession
6%
Yes, but the business case was not justifiable
5%
No, they believe their organisation is too small to do so
5%
Yes, they are in the process of implementing a scheme
4%
Other
8%
Sample: All respondents that do not offer a flexible benefits scheme (140)
I Tax-efficient benefits offered by employers with no flex scheme Childcare vouchers
96%
Pensions
65%
Bikes-for-work scheme
59%
Cars
10%
Group income protection
6%
Car parking
5%
Buy/sell holiday
4%
Mobile phones
2%
Other
4%
Sample: All respondents that do not offer a flexible benefits scheme and offer standalone tax-efficient benefits (102)
The economic climate remains in a state of uncertainty, and it is perhaps because of this that one of the main reasons respondents that have considered implementing flex give for not yet doing so is that the timing was not right for their organisation. Since this question was first asked in 2009, a significant proportion of employers have always expressed an interest in considering implementing flex at a future date. Around three-quarters (73%) of respondents that do not offer flex offer standalone tax-efficient benefits through salary sacrifice arrangements. This percentage has remained stable for the past three years, indicating that although flex may not be an option for many employers, providing tax-efficient benefits that help their employees’ money go a bit further remains a priority. Childcare vouchers remain the most popular tax-efficient benefit offered by employers outside of a flex scheme. As in previous years, pensions and bikes for work offered as standalone benefits also rank highly.
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24 S E C T I O N V I I I
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I Proportion of employers without flex that provide total reward statements (TRS) Do not provide TRS
31%
Do not provide TRS but intend to
31%
Provide TRS in paper format only
13%
Considered providing TRS but the idea was rejected
10%
Provide TRS in an online format only
8%
Used to provide TRS but have removed them
6%
Provide TRS in both paper and online formats
1%
Sample: All respondents that do not offer a flexible benefits scheme (140)
I Proportion of employers
I Employee take-up of
without flex that offer voluntary benefits
voluntary benefits
2%
5% 3%
8%
2%
17%
9%
10% 8% 51%
8% 38%
29% 11%
I Offer voluntary benefits
I Less than 10%
I 61-70%
I Do not offer voluntary benefits
I 10-30%
I 71-80%
I Intend to introduce voluntary benefits
I 31-40%
I 81-90%
I Considered offering voluntary benefits but the idea was rejected
I 41-50%
I 91-100%
I 51-60%
I Used to offer voluntary benefits but removed them Sample: All respondents that do not offer a flexible benefits scheme (140)
Sample: All respondents that do not offer a flexible benefits scheme but offer a voluntary benefits plan (64)
The proportion of respondents that do not offer total reward statements has fallen from 43% in 2010 to 31% now, indicating that employers recognise the importance of ensuring staff are aware of the total value of their benefits. It is interesting to note that more employers offer total reward statements in paper format only (13%), rather than online or in both formats. One reason for this could be that in many workforces, not all employees have regular access to a computer, so paper statements may be most effective at ensuring everyone receives the same information. Half of employers (51%) that do not operate a flexible benefits scheme offer voluntary benefits. The 29% that do not is a slight improvement on last year’s figure of 31%. There has been a slight increase in the percentage of respondents that say they have considered offering voluntary benefits but the idea was rejected: up from 5% in 2011 to 8% this year. Back in 2009, only 3% said the notion of voluntary benefits was rejected. This could indicate that employers are more reluctant to expand their benefits offering during the current economic instability. Of the employers that do not offer flex but do provide voluntary benefits, 57% report take-up of between 10% and 50%.
For more benefits research, visit: www.employeebenefits/research
Final Page Flexible Benefits Supplement Profiles Page:EB_Template_ed
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www.employeebenefits.co.uk April 12/supplement
Providers of flexible benefits products and services Towers Watson, a market leader in flexible benefits, continually evolves its proposition to meet client needs and deliver value. We actively listen to our clients and, using our deep expertise in designing and implementing highly successful flexible benefit programmes, work collaboratively to develop tailored solutions that are aligned with our clients’ business goals.
Towers Watson 21 Tothill Street Westminster London SW1H 9LL
We support companies in all aspects of designing and implementing a flexible benefits
tel: + 44 1737 27 4411 contact: Tanya Smith email:
[email protected] website: www.towerswatson.com
Our approach offers companies the advantages of transparency, cost-efficiency and, most
plan, from business case, to detailed plan specification, benefit provider selection, employee communication campaigns, implementation management and a full administration service.
importantly, flexibility to choose the right level of support. To find out more, please visit us at www.towerswatson.com
Benefex are one of the most successful online reward and benefits providers in the UK, specialising in the design, implementation, communication, administration and support of strategic employee benefit solutions; delivering everything you need under one roof. We deliver fully integrated reward and benefit portals including Total Reward, Flexible Benefits, Savings, Education, Broking and our new Auto-Enrolment solution - Enroller™, which provides an outsourced, complete end to end auto-enrolment service.
Benefex Ltd. 100 Pall Mall St James London SW1Y 5NQ tel: 0845 129 8636 contact: Matt West email:
[email protected] website:www.benefex.co.uk
The Benefex service proposition is unique in the market; seamlessly combining the design and implementation of employee benefit solutions, with the provision of fully integrated reward and benefit portals, delivering and administering client tailored schemes online via the company’s own RewardHub™ technology platform. Every aspect of Benefex’s solutions from consulting to communications and employee support are delivered in-house. As a consequence the company enjoys an unrivalled reputation for exceptional service and delivery, and breadth of capability. Whatever your strategy, Benefex will help you design, execute, support and evolve your employee benefits. Get in touch! Visit www.benefex.co.uk today to request a personalised information pack.
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Gain perspective and clarity to achieve real-world results. In today’s economy, you need advisers with a breadth of skills and expertise. With insights into your specific business issues. Who can work with you to develop the right flexible benefit solutions. Towers Watson brings together global perspectives on people, risk and financial issues to help you build a clear path to improved business performance. Towers Watson. A global company with a singular focus on our clients.
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