Employee Benefits/Towers Watson Flexible Benefits Research 2012: Sponsor’s comment: Flexible thinking is required

Paul Brown, senior consultant at Towers Watson, calls on employers to make the most of flexible benefits as the economic challenges continue

With the euro crisis continuing to hit the headlines and the UK economy threatening to slide back into recession, there seems no end to the economic gloom. Unless employees are being paid guaranteed bonuses for their ‘Olympic’ efforts this summer, their reward is likely to be little changed from last year and the prospects for pay reviews in the short term look equally poor. The picture worsens when you consider an employee’s disposable income, with the increased tax burden and relatively high inflation further eroding people’s capacity to spend. So now, more than ever, it is important to realise the full potential of employee benefits to engage staff and offer them value.

To help counter the effects of low pay awards, organisations and their employees can gain value from benefits in various ways. Salary sacrifice can deliver income tax and national insurance savings and, at a time of increased payroll taxes, these savings can be even greater. There is also greater value to the employee from the better terms and discounts available when selecting employer-provided group benefits rather than individual arrangements.

You might expect participation in flexible benefits to fall during a period of low pay inflation, but Towers Watson’s experience shows that, for most employers, take-up of benefits is consistent with previous years or, indeed, continues to rise. In part, this is because many staff see traditional flexible benefits such as pension, childcare vouchers, healthcare plans and critical illness insurance as essentials that are provided most efficiently through their employer’s benefits. It is still common within a mature flex plan to see more than half of employees making active choices each year as long as the plan is designed to keep pace with their needs and expectations.

It is also important to continue communicating benefits because this investment is directly related to take-up rates and wider employee engagement levels. To get the highest employee appreciation and so the greatest perceived value from benefit plans, it is important to promote them and provide appropriate education tools. So when employers look to review their plans in 2012, they need to consider the employee experience as well as the list of benefits available. Exploiting new technologies, such as social media and viral messaging, can give new life to a traditional benefit communication campaign.

At a more strategic level, organisations are starting to position their benefit plans for future growth. For some, this means rationalising multiple sets of benefit entitlements, consolidating providers or introducing flexible benefits to help accommodate future acquisitions. For others, it is a segmentation exercise to address particular employee hotspots, such as retaining experienced workers, attracting particular skillsets or planning to fill future career paths when there could be a shortage of experienced graduates in a few years’ time.

Finally, employers face a challenge to keep up with legislation changes. There is a great deal of focus right now on automatic enrolment to pensions, with the new legislation beginning to take effect later this year. Most of the demands the pension reforms bring are on record-keeping and tracking each employee’s status. Naturally, a benefits administration system will have a role to play in monitoring and tracking eligibility, communicating the necessary pension plan details and even performing any transactions, such as opt-outs or contribution choices.

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