Focus on facts
What is flexible benefits technology?
This is pieces of software or, increasingly, web-based systems, that enable the delivery of a flexible benefits plan. Many systems are integrated with other aspects of a reward package, such as a pension, and can include modelling tools. Others are integrated with HR systems.
What are the origins of flexible benefits technology?
In the early 1990s, the major benefits consultancies started building expensive, bespoke solutions for larger employers. Since then, the technology has moved on to offer far more functionality. Much cheaper off-the-shelfplatforms have also been developed by technology organisations.
Where can employers get more information and advice on flexible benefits technology?
There is no central body that holds information on the subject. Advice from employers that have implemented a system can often be invaluable. More articles on flexible benefits can also be found here.
In practice
What is the annual spend on flexible benefits technology?
There is no market data available.
Which flex technology providers have the biggest market share?
In the absence of market data, the general consensus is that the top three are likely to be Vebnet, Staffcare and Thomsons Online Benefits. Other large players include Aon Hewitt, Benefex, Bluefin, Edenred, JLT, Lorica Consulting, Mazars, Mercer, NorthgateArinso, Personal Group and Towers Watson.
Which flexible benefits technology providers have increased their share the most over the past year?
There is no central organisation collating this data. However, broker-owned platform providers, such as Bluefin with the Orbit benefits portal, are starting to secure a good market share. Staffcare, meanwhile, has increased itsrevenue and the number of subscribers to its platform by more than 50% over the past year and is reportedly on target to do the same again this year.
Nuts and bolts
What are the costs involved?
Prices vary depending on staff numbers and the sophistication of the scheme required. However, some providers estimate that running costs at the bottom end of the spectrum range from £2- £6 per person per year, while the top end ranges from £10-£30. A flexible benefits scheme, including systems, can be implemented for anything from £10,000 to £30,000.
What are the legal implications?
Every benefit in the system must comply with the relevant legislation, and must be revisited regularly to ensure itkeeps pace with law changes. The system itself must comply with data protection regulations. If employers implement an off-the-shelf system, it should already be compliant, but it is essential to keep abreast of changes.
What are the tax issues?
Employers must know HM Revenue and Customs’ rules around salary sacrifice if they offer such benefits through their flex scheme.
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Flex technology has come on in leaps and bounds in recent years, with systems becoming increasingly sophisticated and more affordable for smaller employers, says Sarah Coles
About 20 years ago, the most high-tech part of most flexible benefits schemes was a pen or basic spreadsheet. Now, people struggle to remember a time before a sophisticated piece of technology lay at the heart of their programme.
Flex technology has changed out of all recognition since those days. Depending on the system employers choose, they can now put in place a single employee portal, with staff able to log on from any computer or, increasingly, from their mobile phone. There, they can handle all their benefits administration, from selecting their perks to modelling their pension or booking a holiday. Systems have become much more about employee engagement, often being able to incorporate voluntary benefits and total reward statements as well as a pension scheme.
Meanwhile, reward and benefits professionals can access the same system at a different level and view all activity, produce management reports and target communications.
Such a system was once the preserve of employers that could afford a bespoke package from a consultancy for £100,000 or more, but now a range of providers, from technology firms to independent financial advisers (IFAs), are competing for business, which has ushered in lower prices. Alistair Denton, managing director at Edenred, says: “Over the last three or four years, prices have been under pressure.”
The proliferation of cheaper systems has opened up the market to a new tier of employers. It is also having an impact on those that originally signed up for a bespoke system. “There is a desire to demonstrate a return on investment which is being driven by procurement,” says Denton. “Large organisations are going back out to tender. They may not end up switching providers, but they want to know what is out there and be sure they get value for money.”
Second-user market developing
Debra Edwards, head of marketing at Staffcare, adds: “The second-user market is developing as the early adopters come back to market to seek better technology.”
But despite falling prices, expectations of greater functionality continue to rise. Matt Norton, senior benefits consultant at JLT Benefits Solutions, says: “Originally, the platforms focused on administration. Now conversations are about the employee and their journey.”
Julia Turney, head of benefits management at Jelf Employee Benefits, adds: “Users want systems to integrate with all the different suppliers through a single sign-on with complete data transfer.”
Ensuring systems can do this is a priority for many providers. Norton says: “We are introducing benefits that can be added any time, such as car leasing or health screening.”
The media though which staff can access systems have also undergone development, which means the technology can be accessed through a range of hardware, including mobile phones and laptops. Some providers have alsodeveloped smartphone applications (apps).
Some flex providers are also looking to extend their reach internationally. Richard Morgan, director of consultancy services at Vebnet, says: “We have [organisations] looking at running a multi-country or global strategy on the same platform.”
Legislation is also driving developments, and the introduction of pensions auto-enrolment later this year is seeing a new area of demand open up. Flex providers see this as a major opportunity to position flexible benefits technology as the administrative system through which auto-enrolment can be managed. But just how they will respond is not yet clear, says Jelf’s Turney. “A lot of employers are looking to advisers to come up with the answer, but when we turn to providers, they say ‘not yet’.”
The pension reforms are also likely to push the technology and take-up of flexible benefits into ever-smaller organisations, says Denton. “At the moment, it is a bit of a sleeping giant, but benefits technology is starting to expand into smaller businesses and that will continue.”
Turney adds: “All the providers have realised there is only a small pool of bigger clients, so they have spent the last year looking at making it more accessible to employers with 100-200 staff and most providers now have a proposition for that segment of the market.”
Retail distribution review
Many will also need to rethink their proposition in the light of the retail distribution review (RDR), due to take effect on 1 January 2013 (see article on page 58). At the moment, some providers will make flex packages, including the technology, available for free or at a very low cost, taking payment through commission on pensions sold through the system. But once RDR comes into effect, financial advisers will no longer be able to be paid by commission.
Staffcare’s Edwards says: “We expect 2012 to be a bumper year as suppliers take advantage of the pension commission offset model before RDR prevents that from happening.”
The trend towards takeovers and mergers among flex technology providers is also expected to continue. Recent years have seen market consolidation, with some smaller technology firms being taken over and larger onesmerging. Norton says: “We expect further consolidation as some smaller flex houses have to review how they operate.”
In some cases, acquisitions are enabling providers to extend the reach of the technology and their products into new areas, such as corporate wrap platforms. In turn, amalgamating different areas of specialism could help providers reach a much wider market. Vebnet’s Morgan says: “Three years ago, Standard Life acquired Vebnet. We talk to other pension providers and they are seeing a similar strategy working for them to help get into the employer space. So there may be some future acquisitions, which may take people out of the market.”
Some providers have also formed partnership agreements and strategic alliances to help them extend the range of products and services they offer. For example, technology provider Staffcare has formed agreements with MidlandHR and Alexander Forbes, among others.
So it seems flex technology will continue to evolve in functionality, while wider legislative and industry developments could shake up the market at a more profound level.
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