Review of the 2013 benefits landscape

Pensions auto-enrolment has preoccupied employers for the past year, but where else have organisations been focusing their benefits efforts during 2013?

If you read nothing else, read this…

  • A number of employers have been focusing on consolidating their benefits packages in 2013.
  • Pensions administration is expected to dominate large employers’ agendas in 2014.
  • Many organisations continue to lack a cohesive communications strategy to explain the value of their benefits provision to staff.

Consolidation of their benefits package has been the focus for a number of employers this year. Mark Pemberthy, executive director at JLT Employee Benefits, says: “It’s about organisations joining up the [benefits] dots; joining up products into more relevant groups of services to make them more identifiable, both to employees and in terms of employers’ culture and values.

“It is driven by the more progressive HR practitioners and by employee benefits consultants looking at employers’ objectives, their workforce challenges and the products and communications solutions out there, and trying to join up products to get more added-value solutions.”

Employers have been particularly interested in taking a more holistic approach to healthcare benefits, combining these in a more strategic way, says Pemberthy.

For example, they may be underpinning their healthcare benefits with comprehensive education and communication strategies.   

“These could focus on what ’healthy’ looks like, not just in terms of products and prevention, but also in terms of education and awareness and the healthy-living drivers of diet, exercise and sleep,” he adds.

Bikes-for-work schemes

Online educational healthcare tools to help staff identify the areas of their life that might be out of balance are also gaining popularity with employers, as are health-related benefits such as bikes-for-work schemes.

Sodexo Motivation Solutions has seen a big increase in take-up of bikes-for-work schemes this year, which Iain McMath, managing director of the benefits provider, attributes to the success of the London 2012 Olympic and Paralympic Games and a growing awareness of the perk.

However, the most popular benefit for Sodexo this year has been holiday trading, which is not necessarily good news for employees, says McMath. “As well as buying more holiday, employees can sell more holiday, so potentially some employees who are struggling on their salaries are trading in holiday for more income,” he says.

“Are they going to be as proficient at work if they are not taking a break and are tired and stressed? There is a risk for employers if they are not aware of this.”

Childcare vouchers have also proved popular with Sodexo’s employer clients in 2013, with take-up rising by about 8% during the year. “There’s been more education around vouchers, but also the fear factor that these might be replaced has kicked in with employees,” says McMath.

A desire to tackle presenteeism has also driven employers’ efforts to consolidate their benefits. Pemberthy says: “There is an acknowledgement that workforces have been driven pretty hard over the last few years, and that doesn’t necessarily have a great impact on employee productivity and levels of engagement.

“Employers taking a more scientific approach to how they support and educate their workforce has benefits for both sides. There are employers out there that want to be paternal and responsible in the workplace, and also to make sure their workforce is as effective as possible.”

Cost-cutting focus

But many benefits professionals have had to temper their strategies because their organisations continue to focus on cost cutting.

For example, Paul Brown, head of flexible benefits consulting at Towers Watson, has helped a number of employers introduce cost-cutting measures this year. These have included pensions salary sacrifice to help employers mitigate the extra costs arising from auto-enrolment.

“We’ve seen auto-enrolment actually prompt some employers to make a wider review of their benefits and challenge how pensions sits in the whole piece,” says Brown. “That’s certainly been one thing that’s led to quite a bit of change.”

Some organisations have reduced the number of benefits they offer, particularly healthcare perks because of the rising cost of premiums, while others have opted to share the cost of funding healthcare benefits with their employees.

“With benefits such as private medical insurance, employers have either been increasing the cover excesses or getting their employees to pay a higher contribution towards the cover,” says Brown.

“And for things like group income protection, a lot of employers are scaling back on the length of time the benefits become payable to maybe a maximum five-year term rather than to retirement. Those sorts of things have really helped keep their costs down.”

Some employers’ efforts to spread the cost of their healthcare benefits have been driven by a desire to increase the proportion of their workforce to which they offer benefits in general, says Brown. “It’s now more common to see benefits covering [employers’] whole population. Over the last 10 years, we’ve probably seen a much lower prevalence of seniority- and service-based benefits being offered.”

Gaps in provision

Benefits consolidation has also enabled employers and their consultants to identify gaps in market provision.

For example, Brown believes there is a gap in the market for a new-style, medium-term savings product to be offered alongside a pension scheme.

He also thinks there is a need for some kind of insurance scheme to pay for eldercare. “The other request that often comes up, particularly from employees, is some kind of travel subsidy; anything that generates some kind of saving around commuter costs,” he says.

However, the government is unlikely to introduce any new tax incentive on employee benefits, particularly just over a year away from a general election. Aware of this situation, a number of employers have been proactively addressing gaps in the market, particularly in terms of media, with Brown noticing a rise in the number of television sets and iPads offered.

A number of benefits providers have also been identifying their own benefits and product gaps. Reloadable retail and leisure discount cards, which have been gaining popularity among employees and employers because of their low cost, are a case in point.  

Brown says: “I appreciate there are a lot of signs that the economy is turning, but I think that in terms of benefits, employees are still looking for discounts. We’ve seen an uptick in retail vouchers and I suspect that will continue to rise over the next few years, along with travel, gadget insurance and iPads and mobiles.”

But employers will remain focused on employee engagement and education, he says. “What we generally see is that when the market starts to become more buoyant and employers are looking to attract and retain the right staff, we see a lot more investment on the communication side [of benefits] and helping employees to understand the benefits they’ve got.”

Sodexo’s McMath predicts a renewed focus on flexible benefits schemes by employers in 2014 as they prepare for the war for talent.

“The risk for businesses is that the economy is improving and will continue to improve, and employees are starting to leave,” he says. ”A battle for talent is coming into play, so employers need to create a programme around flex for employees throughout their time with them.”

Employers need to offer staff a wider range of flexible benefits, including flexible working and children’s education, such as private tuition services, says McMath. 

Media platform optimisation

Matt Waller, chief executive of benefits provider Benefex, expects to see employees demanding rolling flex enrolment windows.

“It’s about recognising what employees want and recognising that we’re all consumers and we all shop online,” he says. “We all go to Amazon and know we can have something delivered tomorrow, if not earlier these days, but some products are still so rigid; they’re just not designed with that mindset.

“I know that sometimes employers can’t always be that flexible, but I think flexibility is key to what employees actually want.”

This flexibility needs to extend to the media platforms through which staff can access their benefits, says Waller.

Over the last year, the proportion of employees who access their benefits via a mobile device has rocketed from 10% to more than 40% and continues to grow, he says. 

Waller has also seen employees demanding more lifestyle-based benefits. “A lot of employers think about pensions and insurance, but we’ve seen all sorts [of benefits] coming through, from hampers and chocolate to jewellery,” he says. “Some employers are really moving into the shopping space.”

Pensions administration

Small and medium-sized organisations will, of course, be focused on their pension auto-enrolment staging dates in 2014, while large organisations will be reflecting on their auto-enrolment progress.

Jamie Jenkins, head of workplace strategy at Standard Life, believes analysis of their pensions administration will be high on many large employers’ agendas. “Employers are going to look back on what they’ve set up and decide whether using their existing pension scheme was right, or whether it was just a last-minute option that now needs reviewing,” he says.

A number of large employers are now realising they could have done more to rationalise their pension arrangements as part of their auto-enrolment projects, but any attempt to rectify this should not prevent a review of their benefits package, says Jenkins.

“What about, for example, [employers] rebroking their life cover and making sure they’re getting a good deal on that?” he says.

Defining success

As employers consider their benefits offering for the year ahead, they should look at how they define the success of each part of the package.

Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development, says employers should be particularly careful not to equate low take-up with lack of success. 

“Benefits like bikes-for-work schemes may be a minority pursuit, but if those employees who have taken them up are very supportive of them, an organisation can say that on the one hand, only 7% have taken them up, but on the other hand, 7% are really enthusiastic about them,” he says. 

Conversely, although auto-enrolment may be bringing more employees into pension schemes, these employees may not appreciate what their employers are doing for them because they are not having to make a conscious decision about their membership, says Cotton. 

“If benefits are about engagement, then success is all about how engaged employees are with benefits,” he says. ”Small numbers do not necessarily mean staff are not engaged if they have made an informed choice to select a benefit. Employees that may be very engaged by a benefit are helping the organisation.”

Vox pop: What reward and benefits trends did you see in 2013?

Our holiday purchase scheme has seen the highest take-up in 2013. We offer two windows a year for staff to purchase up to 10 days of additional annual leave. Staff like being able to buy extra days of leave and pay for it throughout the year.

Some staff buy it each time we offer it, while for others it may be for a special holiday. For many staff, it helps to give more flexibility with childcare in the holidays.

We are planning to introduce a car scheme in 2014, which we expect to be a popular option because many staff live in rural areas and have to travel to work by car.  

We expect the health and wellbeing initiatives we offer, including an employee assistance programme, free flu vaccinations, bikes-for-work scheme, wellbeing and learning days, lunchtime learning workshops and health checks, to continue to be popular. Staff feel these show we care about their health and wellbeing.

Emma Titley, organisational development manager, Carlisle City Council


Vox pop: What reward and benefits trends did you see in 2013?

Given the spiralling cost of private medical insurance, we introduced a series of measures, for new and existing members, designed to control the cost but maintain the benefit.

These included an excess payment for the first time, removal of dependants over 18 and exclusions for pre-existing conditions. In doing so, we managed to reduce the taxable value of the benefit, geographically differentiated in the UK, despite introducing some enhancements.

We then linked these changes to our pay review process and contacted each employee to ask them if they wanted to remain in the plan, operating under a new provider, Axa PPP Healthcare.

I think it speaks volumes for the attractiveness, or the perceived necessity, of this particular benefit that we saw very few employees removing themselves from the plan, and indeed we witnessed a number of new joiners.

Too few employers have tackled the cost of private healthcare, such as in asking for an excess contribution, but I would be surprised if we don’t see more attention being given to this in the future.

The benefit is clearly required and valued, but with health inflation outstripping economic and wage inflation, it really is time to seek greater balance in sharing the burden of the costs.

I see an emphasis on two main areas in 2014: pensions and short-term incentives or annual bonuses.

Gary Brewer, head of reward and organisational development, William Grant and Sons 


Peter Reilly

Viewpoint: Peter Reilly: Universal benefit trend set to continue in 2014

It is interesting to consider how well the employee benefits market has survived the long recession when considering the state of the benefits market and product take-up.

It is also important, when focusing on the future, to consider the extent to which we will see a surge in benefits take-up as employers become more profitable and the labour market tightens. 

The Chartered Institute of Personnel and Development’s Annual survey report 2013, Reward management, published in May 2013, suggests that the 90%:10% pay:benefit split generally continues with any increase in benefit spending, due to cost increases rather than provision improvement.

It would be understandable if organisations have concentrated on pay because this is where staff will have been struggling, with wages falling behind prices. Interestingly, recognising this challenge, half of the survey respondents offered their workforce debt advice counselling, 13% welfare loans and a quarter financial education.

Universal benefits 

For the future, we might expect to see the continuing trend towards universal benefits, with fewer status benefits and their mass customisation. These reward characteristics are part of long-term trends: the reduction in organisational hierarchy and respect for workforce diversity.

Reward practitioners have, for a while, recognised the need to segment their workforce into groups. Personalisation takes that a step forward, made easier by IT advances that simplify benefits management.

The interest in John Lewis Partnership’s reward model suggests that profit-sharing arrangements ought to grow, especially as they are both positive for employee engagement and for cost management.

Similarly, benefits and rewards as a component of employee recognition might be a way of generating interest among younger workers, alongside time off for community activities.

Health-related benefits

Health-related benefits may also see growth. If the state continues to withdraw from health and welfare provision, or at least to cut its reach, employers will be increasingly expected to fill the gap with insurance schemes for aspects of health and job protection.

In a similar vein, there is the question of eldercare: will the increasing number of elderly people and the rising costs of care provision impact on working people in terms of time and money?

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Will this drive some innovation in benefits provision? On a more positive note, interest in employee wellbeing, which is good for public relations and business, might lead to greater provision of private services, such as well-person clinics and support such as counselling.

Peter Reilly is director, HR research and consultancy at the Institute for Employment Studies