Buyer’s guide to flexible benefits administration systems (February 2010)

Administration systems for flexible benefits schemes can take various forms, and suppliers are targeting employers of all sizes to offer the functionality they need, says Sam Barrett

Flexible benefits plans have many advantages for employers, including greater employee engagement and improved performance. But to maximise these advantages, organisations must make sure their flex administration system meets requirements.

Martin Laws, principal consultant at Hewitt Associates, says: “There is a lot of choice out there and [employers] need to think about what they want to achieve with their admin system. Employers could have a system that simply enables annual benefits selection and enrolment, or one that provides information that encourages staff to access it all year round.”

The flex admin system market features several different types of provider. These include traditional payroll and human resources providers, such as Sage, Oracle and NorthgateArinso; companies with more of a technology background, such as Staffcare and Motivano; and those that combine the provision of administration systems with consultancy, for instance Thomsons Online Benefits, Hewitt Associates and Bluefin.

Insurers have also moved into the market, with the likes of Standard Life (which acquired Vebnet in 2008) and Axa (of which Bluefin is a subsidiary) buying up flex admin system providers over the last couple of years. This enables them to access staff and potentially cross-sell their products.

Types of provider

Whatever the type of provider, all are looking to develop systems to suit as many organisations as possible, with smaller firms a particular focus. Richard Morgan, director of consultancy services at Vebnet, says: “Larger organisations want a bespoke solution, but smaller employers can have an off-the-shelf product that offers the standard functionality at a lower cost.”

He adds flex schemes can be implemented or as few as 100 employees, but below that number it can be uneconomical to do so. Another approach is offered by Staffcare, where business development director Adam Maher says: “Some [employers] recognise the value of flex, but have been put off by the cost and complexity of designing and running a plan. Our Flexeasy product delivers a menu of the most popular benefits to reduce the cost and time needed to launch and administer a plan.”

Improvement required

While smaller organisations may be enjoying the opportunity to implement flex schemes for the first time, as the market matures, the early adopters are demanding improvements. One area where improvement is required is the integration between admin systems and benefits providers. Elliot Webster, head of flexible benefits at Bluefin, says: “Huge improvements have been made in the way systems integrate with employers’ payroll and HR systems, but when it comes to sharing data with the benefit providers, they can find themselves going back to Excel spreadsheets.”

But this is beginning to change. Webster adds a handful of large pension providers are now able to offer more seamless integration. “This cuts down on administration for employers, and also enables them to offer more to staff,” he says. “For instance, on Orbit [systems], where we have already integrated with the pension firms, it is possible for an employee to get up-to-the-minute fund valuations.”

As well as improved functionality, there is also increased demand for better communication. Jason Taylor, managing director of Benefex, says: “In a climate of pay freezes, benefits are becoming much more important and employers want to be able to communicatethis through their admin systems.”

Remote access to benefits

This has led to new developments, such as making remote access possible so employees can view their benefits at home. Providers are also looking at how they can make systems more user-friendly. Marcus Underhill, global benefits director at Thomsons Online Benefits, says this has led to an appraisal of some social networking sites. “To improve employee engagement, we need personalised, proactive †messaging information, so we have been looking at how the technology behind sites such as Facebook and Twitter can be integrated into the flex admin system,” he says.

For example, allowing employees to rate benefits, in the same way as Amazon does for books, can lead to better take-up and engagement while helping management design a robust and appropriate benefits package.

Diane Smith, business development manager, total reward and benefit solutions at NorthgateArinso, has seen a rise in demand from employers for more analytical and trend data in the past year. “This has probably been driven by the need for the employer to keep a close eye on the cost and effectiveness of their scheme,” she says. “This management information will ensure the most appropriate benefits are offered to their staff to suit the demands of the workforce.”

Globalisation of plans

]Another emerging trend is the globalisation of plans, with the flexibility of admin systems being key to success. “Employers are beginning to want to manage reward and benefits globally on a single system,” says Morgan.

But achieving this is not simple and requires systems to take into account factors such as tax, social security and currency in the countries covered. Morgan adds: “Europe has been slow to come on board with this, but we are seeing the Asian market grow very quickly.”

Eyes are firmly on the UK market, too, with providers cautious about potential changes to tax-efficient benefits. “It is possible, given the fiscal constraints the government is under, that it will look to make it more difficult for salary sacrifice benefits,” says Laws.

This could harm the business case for flex, because many organisations can offset the cost of their admin system through the savings made by offering tax-efficient benefits via salary sacrifice. Laws says: “But most organisation appreciate the other benefits of offering flex, so even if this does happen, it is unlikely to seriously affect the market.”

Focus on facts

What are flexible benefits administration systems?

These are the technology that sits behind a flexible benefits scheme. The system enables staff to select benefits, and it also processes all the administration by interfacing with providers, as well as an employer’s payroll and HR functions. The systems can also be a valuable communication tool, providing information and allowing employers to demonstrate the value of employees’ packages. Increasingly, systems are being repositioned as reward portals.

What are the origins of flex admin systems?

Flexible benefits schemes and their admin systems started in the US, where the first one was introduced in 1967. Hewitt Associates brought the concept to the UK, launching an internal flex scheme in 1985. It implemented the first major corporate scheme in 1990.

Where can employers get more information about flex admin systems?

There is no independent organisation that represents flex admin system providers. Instead, employers could speak to their peers to compare what is available. More information is also available from Employee Benefits.

Nuts and bolts

What are the costs involved?

Costs vary depending on the size of an organisation and the complexity of the system required. Typically, a scheme covering 1,000 lives will have setup costs of between £20,000 and £40,000 and an annual fee of £40,000 to £50,000 to cover the licence fee and administration. Schemes will fewer than 100 employees can find the fixed set-up costs prohibitive, but with charges halving in the past decade, they could become more within reach in future.

What are the legal implications?

Employers need to be aware of several legal issues concerning their flex admin systems. Most important is data protection, so high levels of security must be built into the systems to guarantee this. Employers must also be careful not to fall foul of the Financial Services Authority’s rules on communications and mis-selling.

What are the tax issues?

Flex admin systems are not a taxable benefit, but employers need to ensure the system is compliant where benefits are offered through salary sacrifice arrangements.

In practice

What is the annual spend on flex admin systems?

With so many types of system available, including in-house designs, it is difficult to pinpoint an exact figure. But Marcus Underhill, global benefits director at Thomsons Online Benefits, says there are roughly 1,000 plans in existence, covering about 1.5 million staff. This equates to an annual spend of between £30m and £50m.

Which flex admin system providers have the biggest market share?

Information is not readily available, but in terms of the number of schemes, Vebnet and Thomsons Online Benefits are understood to share pole position. Hewitt Associates is also a large provider, with schemes such as Royal Bank of Scotland (RBS) in the UK, making it a contender if providers are measured on the number of lives covered.

Which flex admin system providers increased their share the most over the past year?

Without comparative data, this is difficult to assess, but Benefex is believed to have grown significantly this year, reporting a revenue increase of more than 150%. It is also seeing growth through its partnership with Hewitt Associates.