Feature – In depth: Voluntary benefit scheme design changes tack

With the voluntary benefits market undergoing significant changes, are employers taking schemes back into their own hands, asks Rachel Gordon

Case study: Sesame

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The withdrawal of Abbey at Work from the voluntary benefits market, leaving around 200 clients in the lurch, may have made employers question whether their own provider is in it for the long haul.

Furthermore, with an increasing number of employers deciding to bring their schemes in-house, others will be asking whether this is an option for them too, both to save on costs and to regain control over their scheme.

Abbey cited cost as the reason for stepping away from the voluntary benefits market and it is no secret that Abbey’s parent company, Banco Santander, wants to see a more profitable bank emerge.

There are clear signs that the business is focusing more on its core lending and banking arms. Last year, it announced there would be as many as 4,000 redundancies with hundreds of jobs being offshored to India.

Abbey at Work’s closure comes as no surprise to Philip Hutchinson, director of HR and reward consulting at AWD Consulting. "Voluntary benefits are growing. It can be an affordable way for employers to reward staff, but for external companies providing a voluntary benefits package, the work can be time consuming and expensive."

He adds that Abbey at Work may have found it increasingly difficult to bring in the necessary revenues. "Commissions on financial services have been squeezed and most employers won’t want a provider coming into the office for workplace marketing sessions. They are unlikely to respond well if there is a hard sell, added to the fact you can’t control what people buy."

So, is the going as tough for other providers attached to banks such as Bringme from Lloyds TSB and You at Work, which is part of Barclays.

"Providing voluntary benefits alone is not going to be lucrative – but if it’s part of what the client wants, then it can be used as the sprat to catch the mackerel," adds Hutchinson.

He believes that free models are becoming outdated. "We charge a fee because if the services are to be properly managed and run, there needs to be a cost."

Setting charges is a prickly issue. Zoe Brennan, compensation and benefits manager for House of Fraser (HoF), says: "We’ve [brought] our voluntary benefits provision in-house over time. We probably do around 70% of this ourselves now. It gives us more control over how we communicate what’s on offer and we have direct access to staff."

She would be uncomfortable with staff being pressurised to buy financial services, but beyond this, believes the in-house system allows greater input from its employees.

HoF offers a strong range of voluntary benefits alongside its core options. Travel and days out are particularly popular among its 8,000 UK staff, with new suppliers added according to demand. All benefits are listed in an annually-produced booklet.

For financial services, it uses Bringme. But, this is only a small proportion of the voluntary benefits on offer, most of which focus on lifestyle.

Bringme is increasingly looking to charge for its voluntary benefits services. Martin Harris, head of customer management, says: "The cost of launching any kind of benefits scheme in an organisation varies from one customer to another and depends on a whole range of factors, such as company size, communication requirements, the range of products that they need, and what else it is being launched in conjunction with."

Although voluntary benefits formed Bringme’s original product offering at its launch in 2003, this is now less important as the firm looks to provide a total sourcing and admin solution for its clients, including flex.

Harris emphasises that Bringme is not just about raking in the cash from its financial products either. "The backing of Lloyds TSB Registrars simply means that we have a far greater buying power as well as the administration experience. Our voluntary benefits include financial products from two external financial institutions as well as from companies within the Lloyds TSB Group." Harris states that voluntary benefits are like "the aperitif before the meal. They are often the first stage for an organisation with a long-term benefits plan that ultimately ends with flexible benefits". But any provider wanting to keep an employer happy should ignore voluntary benefits at their peril.

The Reward management survey 2006 by the Chartered Institute of Personnel and Development (CIPD) says voluntary benefits are set to expand. It found that, in particular, voluntary benefits attracted the most interest from budget-conscious voluntary sector employers and organisations employing more than 250 staff.

Charles Cotton, the CIPD’s reward adviser, says: "It’s not surprising that the voluntary sector likes these benefits because they can be low cost to provide, but we also found a great deal of interest among many other employers. Organisations are trying to stretch their purchasing power."

He believes that external providers will remain in the market, but are being kept on their toes by demanding HR departments. "You can [implement voluntary benefits] yourself. We did in Wimbledon where we’re based and have got good discounts at a gym and a pizza restaurant, for example. Larger employers who want to differentiate themselves may find an external consultant can save them hassle if they can do a good job."

But if employers can do it on their own, consultants have their work cut out for them.

Mark Carman, marketing manager for Motivano, whose clients include ITV, O2 and Fujitsu, has strong views on the role of a voluntary benefits provider.

"We don’t try to push anything, but want to ensure we select the right benefits and discounts for employees. O2’s staff, for example, are a young bunch and have found discounted Ipods very appealing." He adds that there is scepticism about providers which are part of banks. "It was clear that Abbey at Work, as part of a bank, would have wanted to sell financial products. We don’t make any commissions from these. We offer instead a licence fee which I feel is more transparent."

Clearly then, voluntary benefits are not big money spinners for intermediaries doing the work, but employers like them. If they are not offered, providers risk losing out on more valuable business. So this is the challenge that needs to be met. Abbey at Work failed. The question is: can the remaining providers stay in the game?

Case study: Sesame

Sesame, part of global software provider Misys, provides services to financial advisers, including research, regulatory technology and training support.

The company, based across four UK locations, has around 700 staff. HR director, Campbell Macpherson (pictured), explains that a decision was taken 18 months ago to set up a voluntary benefits programme to complement its core benefits.

"We wanted to show we could deliver something different, but we’re certainly not a Norwich Union in terms of budget. We decided that we wanted staff to help us source the benefits and also saw this as a way of bringing people together."

A small team of benefits champions was established in each office to find out what staff wanted and report back to HR. "We needed to have local knowledge. We wanted to know where staff in the regions wanted to go."

The exception was the home computing initiative, where a consultant was called in because Sesame wanted to ensure it met legal and tax implications. The scheme has been a big success. "It is about staff having ownership," says Macpherson.