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- Workplace savings platforms can offer a range of savings products.
- The platform market is young and providers are at various stages of product development.
- Employee take-up of fi nancial products via savings platforms remains low.
Ask most workplace savings providers and employee benefits consultants about the future growth of workplace savings platforms, and prospects seem bright. In its research The future of workplace savings, published in January 2012, Towers Watson found almost two-thirds of employers intend to offer access to a workplace savings platform in the next five years, and almost 80% of employers think it would improve workers’ perceptions of their benefits programme.
But critics question the potential growth of workplace savings platforms, which aim to provide employers with an automated system through which to offer staff financial products and financial education, for example, through online modelling tools.
In fact, The Platforum’s Workplace savings platform guide, published in September 2012, found that most employees are unenthusiastic about workplace savings platforms. The research found that between 5% and 10% of employees had signed up for an individual savings account (Isa) through their employer, preferring to source financial products from banks and building societies.
Product take-up statistics also speak volumes. Mercer Workplace Savings, for example, has signed up just 58 employers since it was launched in February 2011. Of these, only 10 use some other form of savings product, with some having signed up for savings products alone.
Mercer has developed a bundled approach to the workplace savings platform market by offering its consulting services combined with platform technology from Friends Life, Standard Life and Zurich to offer pensions, cash and stocks-and-shares Isas and investment accounts, alongside individual share dealing and a range of investment funds.
Martin Palmer, benefits marketing consultant at Friends Life, says staff tend to use just one product on the provider’s platform, My Money. But he explains that the platform s as much about staff engagement as product take-up.
Tools and risk profiles
“The platform is built around aggregation and engagement, and we are looking to make it an online experience, so it’s around the tools and the risk profiles,” he says. “The idea is to try to get people to go online more often, to actually keep track of their savings, understand more about what they are investing in, and also how they are doing against their plans and how they are doing for their future.”
Workplace savings platform providers are working hard to invest in the technology, despite slow market growth.
As part of its auto-enrolment service, Standard Life has expanded the investment proposition available on its Lifelens platform, which was launched in March 2011. New risk-based portfolio funds are now available to help employers comply with default fund requirements under the new pension reforms.
In its Guidance for offering a default option for defined contribution automatic-enrolment pensions schemes, published in May 2011, the Department for Work and Pensions (DWP) says it requires default pension funds to take account of the characteristics and needs of employee members and offer an appropriate balance between risk and return.
Ann Flynn, head of corporate marketing at Standard Life, says: “You can have a default fund that sits in the middle of the risk spectrum, so say we take one to five as the risk spectrum, one being very cautious and five being adventurous, with three in the middle. But you could also have other [fund] options to select, number two or number four, if an employer is slightly higher or lower than three in their risk questionnaire.”
Similarly, Zurich has expanded the investment offering available through its Money4Life platform, evolving its group personal pension (GPP) to a limited group self-invested personal pension (GSipp), which offers mutual funds from a range of managers and a limited range of stocks-and-shares dealing services.
Zurich has 4,500 employees currently using Money4Life (see box below).
Dave Lowe, head of corporate wealth proposition at Zurich, says: “From our perspective, the GPP market is going to dominate whatever the [workplace savings platform] market becomes for at least the foreseeable future.”
Corporate Isas
Brenden Mielke, product director at Thomsons Online Benefits, adds: “There have been numerous attempts to get other workplace savings schemes into the market, but they have met lukewarm responses. A good example is the corporate Isa. There have been several attempts to launch it, but we are not seeing huge demand from our clients for it. The crux of the matter is: what is the benefit of the corporate Isa compared with the Isa people can get on the high street?”
Thomsons’ Darwin employee benefits platform is therefore focusing on offering pension services, including pension modelling tools and calculators, consultancy and employee communications.
But Hargreaves Lansdown claims to have seen huge growth in take-up of Isa products through its platform, Vantage, which is powered by Staffcare technology, even though the provider launched its cash Isa only last year.
Of the 30 employers, with an average of 500 employees, that have signed up to Vantage, 16% have signed up to Hargreaves Lansdown’s stocks-and-shares Isa and 4% to the provider’s cash Isa (see table below).
Jeff Fox, workplace benefits consultant at Hargreaves Lansdown, says: “The take-up is phenomenal, I think because of the way it is implemented: we go on-site and show staff how [the Isa] works.”
Nevertheless, product take-up remains low (see table below).
So what will drive future growth in the workplace savings market?
Employer engagement
Zurich’s Lowe believes employer engagement is key. “It is just a matter of people wanting to engage,” he says. “You have got to remember that our clients are large employers and most of those are actually more concerned about getting through auto-enrolment than they are about providing wider choice through our investment range to their employees.”
Jonathan Watts-Lay, director at Wealth at Work, believes financial education will help stimulate the engagement of both employers and employees. “It is all about what [platforms] allow you to do,” he says. “For example, employees do not understand why they should get an Isa. It’s almost like favour of the month: they pick up a magazine and think they’d better get one, but they’ve no idea why.
“You have got to look at the motives of the employer as well. Employers have to come up with the value: they have to ask themselves why they are doing something and what value it offers to their employees.”
Emma Douglas, head of workplace savings at Mercer, agrees, explaining that timing is equally important. “The employee is not accessing these products in the workplace yet, but what we have found out is that Isas [for example] have a season,” she says. “People are quite happy to think about Isas in March or April time, but if you try to interest them in an Isa in November; it’s pointless. I think we have got a lot of work to do on the communications and marketing front.”
Standard Life’s Flynn says effective communication is founded on marketing the right message to employees in a simple way, particularly when it comes to Isas. “It has to be marketed much more strongly as a benefit and it has to be marketed at the right time,” she says.
Meanwhile, Thomsons Online Benefits’ Mielke believes technological development is the key to workplace savings platform growth. “I think market growth is going to come from having really innovative solutions available for both employers and employees,” he says. “Yes, there will be that education piece, but when true innovation happens, then what we will find is that those sectors of the market will grow quite quickly.”
Salary sacrifice arrangements
Flynn believes the availability of workplace savings products through salary sacrifice arrangements is just the innovation the market needs.
Policy makers are already looking at how Isas can interact with pensions, and there is a recognition now that Isas are popular savings vehicles across the employee demographic, whereas pensions have had a harder time of it,” she says.
“We are anticipating a potential policy change around the pension-Isa regime that will allow us to enhance products in a different way, so that employees can go into their Isa and readily transact with their pension.
“Depending how opt-outs happen in 2013, and how many people disengage with pensions even with the auto-enrolment piece, finding a way to get people to save again will be critical.”
All the market will then need is for employers to consider workplace savings platforms as a tool with which to achieve this and the future really will look bright for platform providers.
VIEWPOINT: Mark Polson, principal, The Lang Cat
The corporate market is lumpy and the buying cycle for corporate benefits technology, including workplace savings platforms, is radically different from the retail or advised spaces. Nonetheless, attitudes have hardened to corporate platforms. One major employee benefits consultant told us recently: “I am not sure we have written a single workplace savings platform scheme.”
There are four main reasons for the slow take-up of workplace savings platforms. First, auto-enrolment is crowding all thoughts of shiny new things out of the minds of benefits managers. We have heard time and again: “It looks good, but we need to get auto-enrolment sorted first and then we will revisit.”
Second, there is no financial reason for employers to offer individual savings accounts (Isas): they don’t offer the benefits of pension contributions, so there is no national insurance saving.
Third, there is no overwhelming demand from employees. As one benefits platform chief executive says: “Why would an employee sign up to an Isa and wait a month for it to start coming from payroll when they can do it immediately online with a debit card themselves?”
Finally, there is no compelling case from providers for employers to sign up to platforms. Too often, platforms are being sold as group personal pensions with knobs on. The market has not yet worked out exactly what to do with platforms; it needs more time.
But it’s not all bad. The numbers are moving and the experience of firms such as Hargreaves Lansdown and Fidelity shows that measures of engagement, such as the percentage of employees making active investment decisions in their pension, can be positively impacted with good communications and technology. The fundamentals are in place; we just have to be a little more patient.
CASE STUDY: GLENMORANGIE
Pension communications find the right blend
A desire to create a comprehensive pension communications strategy to help boost take-up of its contract-based defi ned contribution (DC) scheme prompted Glenmorangie to sign up for Zurich’s Money4Life workplace savings platform last year.
Ian Drysdale, HR director at Glenmorangie, says: “As an employer, we were very keen to increase membership of our scheme.”
Take-up of its DC scheme was 53% higher than that of its previous defined benefit scheme, which closed in 2002. The rise was credited to the communications strategy, which included employee presentations. “These were exceptionally good and in fairly easy-tounderstand language, explaining why staff should be thinking of the pension scheme and what their options were,” says Drysdale.
Employees also receive newsletters about the scheme. Drysdale adds: “It is something staff welcome: regular communication, newsletters about what is happening with their fund.”
Glenmorangie’s pension scheme has 161 members, with employer contributions of up to 10% for staff who contribute 5% of gross pay.
The platform’s modelling tools can help staff understand their likely retirement income based on their current savings levels, says Drysdale.
Glenmorangie currently uses the platform only for pensions, but it will consider offering employees access to individual savings accounts (Isas) in the future.
“They are the fi rst thing we will look at next,” says Drysdale. “We decided to let the platform run with pensions in the first year and then review the alternatives.”
Implementation of the platform took six months. “It takes a long time to get communication tools right,” he adds. “We probably set an ambitious timetable because we didn’t understand how onerous it would be to get the platform up and running.”
