Reduced costs and improved technology means employers can now expect more from flexible benefits administration systems, says Tom Washington
Implementing a flexible benefits plan can be a time-consuming and costly task for any employer. Behind every flex programme is its administration system - a cog in the machine that because of its function is equally as important as the benefits themselves.
The advent of internet technology spelt the dawn of a new era for flex administration systems. Originally, such systems were a desktop-based solution to providing employees with a service that enabled them to make their benefit choices. At this stage, flexible benefits schemes were primarily the preserve of large organisations and providers had to build complex, bespoke administration systems for employers. This was a time-consuming and expensive process, especially when it came to changing or adding benefits.
As the years have passed, however, these models have become less attractive as developments in the market have enabled providers to move towards web-based technology that allows them to deploy one system to a number of employers, and configure it to meet each organisation's specific needs.
Andrew Morris, managing director at Aegon Benefits Solutions, explains: "We are now in a phase where there are a significant number of educated corporate buyers in the market who have had a flex system in place for a number of years. We are now seeing that, as a consequence of this, many of these [employers] are coming back into the market in order to source an administration system that more closely meets their needs. These buyers are aware of the weaknesses of their existing platforms and the service they are receiving."
James Verner, sales director at Vebnet, adds: "In the past, before web-based technology, creating a big bespoke [flex] platform on a client-by-client basis could be very expensive. The cost is lower now and where providers were [previously implementing] three or four plans a year, they can now do 30 or 40. Lower prices have broadened systems' appeal and now small [employers] are implementing them, too."
This wider appeal among employers is not just down to cost. Advancements in technology have also made implementing flex far more accessible, as well as simpler to use. For example, recent developments in the market have seen a drive towards personalised communication, with some systems being able to automatically deliver targeted relevant messages to individual employees. Chris Bruce, managing director at Thomsons Online Benefits, says this is a key area of growth. "There is a desire to segment and personalise communications that go out to staff," he says. "[Instead of] sending out just one generic message, [the system] targets specific groups of employees with relevant information relating to their choices and they are far more likely to read it."
Verner adds: "The tone of voice or the language used to a group of employees can be adapted. [Automated] segmentation of information allows employers to engage different age groups with different priorities."
Going forward, employers will begin to use flex admin systems to communicate with employees more regularly rather than sticking to the traditional annual structure associated with flexible benefits programmes, says Richard Stewart, director at Redbourne.
"We are looking into giving employees communication that relates to their personal information on a regular basis, like monthly total reward payslips," he explains.
A number of providers are also working towards developing products to cater for multi-national organisations that already offer flexible benefits plans. Implementing a global system enables employers to consolidate their benefits management software, and run several countries' benefits provision from one location.
James Markham, director at SBC Systems, explains: "At the moment, most multi-country capabilities that exist are all separate pieces of software. A single platform is a more sophisticated step and a growing trend."
Vebnet's Verner explains that one international benefits portal means that HR is able to run a report for across different countries to get a detailed analysis of what is going on globally.
Whether they are used to manage a UK-based or multi-country scheme, flex admin systems must also be adaptable enough to react to change, both within the organisation and externally. Systems are becoming increasingly good at handling changes to legislation that impact on employees' choice of perks, such as last October's amendments to maternity leave.
Markham adds: "The technology has to be agile enough to change quickly. Providers should also be thinking about how 2012 [and the introduction of personal accounts] might shape flex plans and what the systems will need to do [in response]."
Systems also have to be flexible enough to incorporate tax changes around tax-efficient benefits that are offered through salary sacrifice and are included in a scheme. However, Morris says: "There is some concern that if HM Revenue & Customs was to close the door to salary sacrifice that it may force companies to re-think their flex strategy."
Management information For employers to continue to develop their flexible benefits systems substantial financial investment will often be required, so it is vital they are able to see how their scheme is performing. This means providers will have to ensure that employers are supplied with meaningful management information through their system.
"People do not just want a system in place," explains Markham. "They want to get data out of it in an easy [to read] format that they can use to make a difference in what they do and be intelligent about their reward spend."
This demonstrates the shift from flex admin systems being seen primarily as a platform to deliver benefits for staff, to becoming a management tool for employers. Markham believes employers' main focus will remain on the quality of service that their admin system provides to staff, however, as systems evolve, they will increasingly be used as a business tool to help employers manage costs, track and monitor information, and justify value for money.
"Flexible benefits is still perceived as a significant spend with complex administration, neither of which are necessarily the case these days," says Morris. "Employers are keen to ensure they are maximising the tax efficiency of their benefits and therefore are selecting systems that administer salary sacrifice and can provide detailed [management] information."
Looking to the future, most providers agree that straight-through processing (STP) is the natural progression for flex admin systems. This essentially means that the links between any number of system databases are all made automatically. So when employees make their benefits selections within flex, these are automatically linked through to payroll to make any salary deductions, to the finance team for reporting, to the pension department to arrange contributions, and so on.
"All of that is happening automatically with straight-through processing," says Markham. "Everybody wants to get there. If you have STP then you have the kind of clever stuff you get when you do your car insurance online [for example]. That is our area of investigation and [the same goes for] other system providers."
However, Verner adds: "A lot of providers talk about [using STP technology] but I do not think many of them actually do it. It is a good marketing term but it is only as good as the weakest link and the lowest common denominator is the [individual] benefits provider. Not all of them are actually capable of managing all that data."
Last year saw some consolidation in the flexible benefits systems market when Standard Life acquired technology provider Vebnet.
There is also a consensus that further consolidation will take place as employers increasingly look for a more holistic approach, where technology and benefits services are increasingly combined.
"Standard Life's acquisition has led to lots of speculation about what its corporate wrap platform will look like and how this will be distributed to the market," says Morris. "There is an expectation that some smaller players will have a change of ownership in 2009. This will further consolidate the marketplace."
Markham adds that system specialists linking up with benefit providers may allow larger organisations to offer their platforms at a lower price. "This may have a [negative] impact on the smaller software players in the market," One thing is for sure, while the market consolidates existing providers will continue to develop more of their product offerings to meet employer needs. For more buyer's guides visit: www.employeebenefits.co.uk/item/1959
Focus on facts
What are flexible benefits administration systems?
Flexible benefits administration systems are the technology behind flex schemes, providing a platform for staff to select their choices and for organisations to automatically manage and communicate the benefits effectively. Employers are increasingly using the systems to measure the popularity of the perks and to identify a link between performance and reward.
What are the origins of flex admin systems?
Flex admin systems originated with employee benefits consultancies in the early 1990s when bespoke models were created for large employers to manage their flexible benefits administration. These systems were cumbersome and expensive, but have led to the evolution of web-based models. These systems can be tailored to meet an organisation's needs at a fraction of the cost.
Where can employers get more information and advice on flex admin systems?
For more information on flexible benefits and administration systems, visit: www.employeebenefits.co.uk/benefits/flexible-benefits.html
Nuts and bolts
What are the costs involved?
Prices will vary depending on size of an organisation, the complexity of a scheme, and the number of languages and services required such as consulting, communications and employee helpdesk. However, costs are often based around set-up fees and then ongoing software licence fees.
What are the legal implications?
Employers will need to consider the implications of varying terms and conditions of employment, such as the impact of salary sacrifice arrangements on the definition of pensionable salary.
What are the tax issues?
If employers include tax-efficient benefits offered via salary sacrifice within their flexible benefits scheme, their administration system must be able to take the tax and national insurance efficiencies into account, as well as the effect on P11D reporting.
In practice
What is the annual spend on flex admin systems?
There are no available figures.
Which flex admin systems providers have the biggest market share
Big market players include Aegon Benefit Solutions, Thomsons Online Benefits, NorthgateArinso, Staffcare, Motivano and Vebnet.
Which flex admin systems providers increased their market share the most over the past year?
There is no specific market share data so it is difficult to state which providers have grown the most. However, Vebnet and Thomsons Online Benefits are both thought to be among the main contenders.
