- The cost-of-living crisis and looming recession has led to a stronger focus on support which will follow into the new year, with some employers looking at cost-effective options.
- Due to the struggle for talent and the rising costs of living, pay awards are expected to be higher next year than in recent years.
- Organisations are showing increasing support for diverse family models, and employers are more likely to provide benefits to parents these days than in the past.
2022 was a year of much change, with the cost-of-living crisis raging on and many employers stepping in to help their lowest-paid workers with one-off payments and pay rises. This looks set to continue into 2023, with employers forced to re-examine what their reward package offers their workforce and how they can improve it.
Reward and benefits changes
Gallagher’s 2022 UK benefits strategy and benchmarking survey, published in November 2022, found that 49% of organisations were planning changes to their current benefits offering compared to 46% last year. Of those that are considering change, 79% will be enhancing benefits.
Diverse workforces and hybrid working are impacting how reward and benefits are now viewed by employees and candidates, says Sarah Jefferys, head of reward consulting at Gallagher. Organisations also recognise the need to design benefits programmes to suit a variety of demographics.
“We can expect to see a greater focus around enhanced diversity within the benefits structure in 2023, making it easier to address employees’ needs as individuals, while creating a greater employee value proposition,” says Jefferys. “Service or status-based benefit approaches are in decline, while fairer and more equal practices are on the rise. For example, the annual leave trend is moving towards a single status holiday entitlement and nearly 60% of organisations are applying the same holiday entitlement to all employees, up on last year’s 52%.”
Due to current events such as the cost-of-living crisis, there may be a stronger focus on support in 2023 and some employers will be looking at cost-effective but also more supportive options. However, in order to create a compelling total reward offering that meets the needs of a diverse workforce, it is important that organisations understand what is key to their employees.
Helen Payne, strategic consultant at Aon, says: “We expect to see employers conducting better employee listening in 2023. Traditional annual engagement surveys are being replaced with more frequent pulse and neuroscience-based ones that remove conscious bias and reveal the underlaying issues. This is essential to create an inclusive culture where everyone feels that they belong. We also expect to see a greater focus on developing a compelling total reward package aligned to business outcomes, purpose and values, and talent and reward strategies. Employers are looking for a more holistic approach to people spend, requiring broader thinking than just increasing pay.”
Events impacting pay and financial wellbeing
For the year ahead, employers will be considering how they can ease the burden of ongoing cost pressures while also keeping a close eye on operational costs. Those that are not able to offer a pay rise will be looking at more budget-friendly options that still offer value.
The focus will remain on financial wellbeing, says Augustus Vickery, senior principle at Gartner. Employees are more sensitive about pay due to inflation and employers will be focusing more on how they can supplement this if they are unable to give pay rises.
“There has been a recent evolution in staff accessing their wages on demand, and this will be advancing and becoming more sophisticated,” Vickery says. “The cost-of-living payments that we’ve seen will continue. In terms of pensions, employers will be looking at how to position them to staff without a disposable income and how they can use their budget to support staff with retirement benefits if they cannot put it towards pay.”
Some employers will look at sustainability through their benefits package, such as offering discounts on energy efficient appliances, while also examining whether season ticket loans and company cars are still relevant, adds Vickery.
Due to increased demand from their workforces, employers have this year implemented many financial wellbeing support mechanisms, such as pay increases, one-off bonus payments, educational seminars or webinars around budgeting, financial planning, and mortgage advice, discount platforms, loans, salary advance and alternative savings vehicles. This is likely to continue into the new year.
Financial education will continue to sit high on the agenda for 2023, says James Malia, UK managing director at Prezzee. “Employers are well placed to provide this support and there are multiple options that won’t break the bank but might just make their employees’ Christmas. It will certainly aid financial inclusion across all demographics too, from the younger generations still wanting to save, to those aged 55 and over who are tempted to touch their pension early to ease the financial strain.”
Pensions trends
The ongoing cost-of-living crisis is likely to see many older workers asking questions about whether and how they can access their pension savings. However, accessing a pension fund early can trigger a change in tax status that limits further contributions, meaning that many do not draw their pensions while still working.
Pension savers are expected to be asking more questions about money management, so employers that offer support of this kind are likely to be appreciated, says Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association. “2023 marks the year when we expect the political parties to be drafting their manifestos for a likely 2024 General Election,” he says. “As we argued in our report 5 Steps to better pensions, which was published in October 2022, we believe the UK needs to set clear national objectives for the pension regime to increase the value of the state pension so no pensioners live in poverty. Automatic-enrolment should be broadened and increased gradually over the course of the next decade.”
The new year will look different for some trustees of occupational pension schemes in relation to their environmental, social corporate and governance duties.
Those with relevant assets of between £1 billion and £5 billion are now subject to the climate change governance and reporting requirements, alongside larger schemes, points out David Saunders, senior partner at Sackers. “Many schemes in scope will be publishing their first reports during 2023, requiring trustees to get up to speed quickly with new jargon and technical concepts. As these requirements bed in, we can expect more focus too on the bigger picture, such as how climate change intersects with trustees’ fiduciary duties and the possibility of making a net zero investment commitment,” he says.
Healthcare and wellbeing changes
It is expected that more employers will use data to measure workforce resilience and the return on investment of their wellbeing spend, says Payne. “Aon’s 2021 Global wellbeing survey, published in April 2021, reported that 32% of global organisations struggle to measure the return on investment of their wellbeing initiatives. We know that employee burnout has become one of the top reasons for attrition across firms. Embedding wellbeing into the firm’s overall strategy, as opposed to a one-off perk, will improve retention.”
Tom Hellier, work and reward expert at Willis Towers Watson, expects to see more of an emphasis on wellbeing benefits and, where these are not already in place, employers introducing them. “These are most likely to focus on financial and mental wellbeing, through both technology-enabled platforms and in-person or live virtual interactions that are typically intended to benefit all employees," he says. "Some might extend or change the coverage of healthcare depending on demographics and NHS backlogs.”
Digitally-enabled technology and platforms can mobilise self-guided support for employees. They can also offer more continuous care through apps that prompt and guide behavioural change between therapy sessions.
In 2023, this shift towards digitally-enabled models of care will be more necessary than ever, says Dr Anna Mandeville, UK clinical director at Koa Health. “To ensure longer-term benefits to both people and healthcare systems, we must produce real efficiencies in care without sacrificing clinical quality. I predict that once assured about quality and safety, we will start to see an increase in digital technology offering solutions that are more timely, continuous and comprehensive across the mental health continuum.”
Benefits for carers trends
Organisations are showing increasing support for diverse family models; as a result, employees’ family lifestyle choices are less likely to be a barrier to them receiving parental benefits in 2023.
Caregiving benefits tend to be more prevalent in Asian countries and trends there, such as the use of greater personalisation, options for different scenarios and equality, are making their way over to Europe, says Vickery.
There is also movement in organisations’ diversity, equity and inclusion approaches, with fewer offering statutory-only shared parental leave compared to last year.
Gallagher's aforementioned research shows a shift away from statutory-only maternity and paternity leave, a marginal increase in paternity-enhanced contractual schemes, and a slight decrease in discretionary schemes compared to last year. “Almost half (47%) [of employers] offer enhanced shared parental leave on the same basis as maternity, an increase from 2021," says Jefferys. "This year, 98% offer some sort of other leave not covered in family leave, showing a positive trend towards employers providing more choices to their employees to better fit their individual needs.”
Upcoming legislation
In early December, the UK government committed to introducing secondary legislation that entitles employees to request flexible working from the first day of their employment. The Neonatal Care (Leave and Pay) Bill and Carer’s Leave Bill are currently being discussed in the House of Commons. If these take effect, they would provide leave and pay for those with children receiving neonatal care and unpaid leave for staff with caring responsibilities.
Meanwhile, the European Union (EU) Law (Revocation and Reform) Bill was tabled in the House of Commons in September 2022. If brought into force, all EU derived legislation will fall away unless it is specifically retained by December 2023, with the option to extend until December 2026, explains Rachel Western, principal, health and risk at Aon. “This would mean that employment law staples, including Transfer of Undertakings (Protection of Employment (Tupe)), part-time and fixed-term worker regulations, and holiday pay rules may disappear,” she says.
There are also a number of proposals from the Department of Work and Pensions, Financial Conduct Authority and Pensions Regulator related to the establishment of pensions dashboards in the pipeline, which will allow an employee to view their current pensions, including both state and private, online.
A further initiative, which was announced as part of the Edinburgh Reforms by the government on 9 December 2022 for financial services regulation, is the introduction of a value for money regime for defined contribution pensions. “Pensions that do not meet a value for money standard will have to consolidate with larger schemes,” says Peaple. “The government believes larger pension schemes will be more able to undertake direct investment in the UK economy and contribute to future growth.”
While the trend of employers offering dedicated cost-of-living support to their workforce is likely to continue into 2023 as inflation continues to rise, health, employee wellbeing and support for caregivers are set to remain firmly on organisation’s agendas for the time being.
