Historically a range of providers have served the voluntary benefits market. They include those that sell specific products face-to-face in the workplace; companies selling financial services and other lifestyle products to employees directly over the internet; and independent firms which put together bespoke packages for clients and help them communicate with their staff. The launch of Bringme, Lloyds TSB's no-fee scheme, however, has changed the face of the voluntary benefits market over the last year.
Andy Lister, head of employee benefits at benefits provider the Grass Roots Group, says: "Bringme's product is probably no better than anyone else's but they've stolen a march because they've taken all the marketing costs of launching a scheme on the chin." They've gone from nought to [market leader] in 12 months."
Competitors doubt that the parent company is making money on the operation. Indeed Matthew Ansell, Bringme's head of marketing, seems to agree: "I don't think [our parent company] see themselves as billionaires in the voluntary benefits market but it complements and expands [Lloyds TSB's] existing benefits [products]."
There is also some value to the bank in vertically integrating their financial services products with direct marketing to employees through Bringme and giving its relationship managers a new product to sell to their corporate clients. "Our target market is the FTSE 350," explains Ansell. "That's because 90% of them already have a relationship with us. We've gone very quickly into that market." Its customers include IBM, Cadbury, Nestlé, B&Q and Somerfield.
Barclays bought the number two player, Youatwork, from Royal & SunAlliance last year. Youatwork eschews Bringme's vertically integrated approach in favour of a more traditional independent stance and offers financial services products from a range of providers as well as a web-based discount club for lifestyle products. It also charges client businesses a fee for providing the service. However as with Lloyds TSB and Bringme, Barclays' bank relationship managers are the primary sales force.
Even though Bringme has had success in creaming off the top companies it still leaves plenty of niches for specialist providers to fill. There are companies, such as Combined Benefit Services (CBS), that make no charge for providing an insurance-led voluntary benefits programme, as long as every employee has equal access to the service. Its revenue comes from one-to-one workplace marketing of financial services to employees. "Our experience is telling us that there's quite a gap in the marketplace at junior management [level] and below. Typically the level of benefits that an employer is able to provide, because of expense, is quite limited," says Nigel Brittle, sales marketing director at CBS. "Voluntary benefits have provided a convenient way of providing benefits to staff without a huge additional cost to the employer."
Richard Rankin, chief executive of voluntary benefits consultants Team Rewards, is sceptical: "I think the problem with financial services [products], such as home and motor insurance, is that it can be difficult to position it as an employee benefit. From an employer's perspective, they can't guarantee that 'their' deal is going to be better than what [employees] already have because everybody's circumstances are different."
It can be hard for employers to pick their way through the maze of different and evolving voluntary benefits options. This is where the independent benefits consultants can fit in. A similar question mark surrounds the online sale of lifestyle products. While many providers simply offer a web interface between employees and third party suppliers, the Grass Roots Group, which runs www.benefits 4me.co.uk, also runs its own call centre, warehousing and distribution. Lister says: "We're offering not just products but also full backup. So if you buy a set of sunglasses from us and they get lost in the post, then the employee deals with us not a third party supplier."
A growing realisation of the importance of communication is shaping the evolution of the voluntary benefits sector. Bringme relies on internal marketing to make its free offering effective. As Ansell says: "There's no such thing as a free lunch." Others comment that "a brochure with a company logo stuck on the front doesn't mean as much" as an integrated programme. Overcoming employee cynicism is also important if voluntary benefits schemes are to be perceived as genuinely motivational by staff.
Besides launching a programme and maintaining interest in it, some providers are also working hard to integrate voluntary benefits into wider benefits packages and communicate around them. Benefits provider Motivano, for example, offers a voluntary benefits scheme alongside its flexible benefits plan and total reward statements. Employers can pick and mix Motivano's different products and often see voluntary benefits as a stepping stone to a fully flexible benefits scheme. Alistair Denton, Motivano's managing director, says: "We provide a technology and benefits solution where the client is in control of what is offered to employees." Similarly, Youatwork offers (at an additional cost) to integrate existing core benefits, such as pensions, into its employee self-service voluntary benefits website.
Clearly, the market is growing and changing rapidly. Bringme has set a new price benchmark and introduced a new business model but it is selective about potential clients. This leaves plenty of work for other suppliers and "where the market is really taking off is among businesses with [the number of employees] starting at 100, and ranging up to 3,000 to 4,000," says Motivano's Denton. He adds: "That's why the website is so important. You don't have to fill thousands of envelopes every month and it is easier to service smaller organisations efficiently."
Indeed, most insiders think that the internet will become increasingly important as more employees have access to computers at home and at work. Employers increasingly sanction the use of computers at work to access benefits portals, which include shopping and financial services, as a way to address work-life balance. However, it is still early days and most companies still rely on paper to support the internet.
Another trend is the popularity of schemes to provide tax-privileged voluntary benefits such as computers, bikes and childcare vouchers. Bringme's Ansell says this is "one thing that has really surprised me" over the last year.
Wendy Fleet, head of marketing at Youatwork, adds: "The key change has been the acknowledgement by human resources that voluntary benefits can be a tool to achieve their objectives of retention and motivation whereas two years ago they were more disparaging about it."
THE FACTSWhat are voluntary benefits plans? Voluntary benefits are products or services that are made available through an employer but which are bought by employees out of their own taxed income, typically at a discount. This enables employers to offer a wide range of benefits at a relatively low cost. Typical packages include insurances, financial services, travel and leisure services and lifestyle goods such as CDs.
What are the origins of the product? It's very much an American concept, where some 75% of companies offer some kind of voluntary benefit. In this country it has also evolved out of workplace marketing of financial services products. There is also a tradition in many organisations of HR departments negotiating ad hoc discounts for staff, typically in local shops and facilities.
Where can employers get more information and advice? Little independent advice is available so the best place to obtain information is from benefits consultants or from the providers themselves.
NITTY GRITTYWhat are the costs involved? With the exception of Bringme, Halifax and certain companies which focus on worksite marketing of financial services products, most voluntary benefits providers charge for their services. This breaks down into a set-up fee, related to preparing a website and collateral material and an ongoing per employee, per month fee, which can range from £2-£10 depending on the supplier and the number of employees involved. Costs can be reduced and, in some cases, eliminated through National Insurance (NI) savings on a home computing initiative, allowing a provider to do worksite marketing or by putting complementary products in place, such as flexible benefit schemes, at the same time.
What are the legal implications? New legislation due next year will have some impact on how financial services are marketed to employees. There will need to be a higher degree of impartiality. Employers have an obvious obligation to pick cost-effective reputable suppliers, if only to maintain staff goodwill.
What are the tax issues? There are no tax or NI issues because any transactions take place between the employee and the provider. The only partial exceptions are benefits like home computing initiatives and childcare vouchers where there are tax breaks for employees.
IN PRACTICEWhat is the annual spend on the product? No figures are currently available.
Which providers have the biggest market share? There is a general lack of data. Some of the larger players, however, include Abbey at Work, Employee Advantage, Bringme, Youatwork, Personal Group, Combined Benefit Services, Motivano and the Grass Roots Group.
Which providers increased their share the most over the past year? Once again there is a lack of hard data, but over the last year Bringme is thought to have become the market leader.