The Future: from thought leaders: New-look packages for a changing business climate

Downturn may force employers to redesign their benefits packages, says Diane Buckley, managing director of group protection at Legal & General

The environment in which employee benefits operate has changed dramatically over the past few years. Surprisingly, this has had little impact on scheme design so far, and many still operate on the basis they have been working on for decades.

However, this is the key area that is likely to change as the economic downturn forces employers to find ways to reduce their expenditure.

But emerging from the prevailing economic gloom will be leaner and fitter organisations with an even greater need to ensure their staff are looked after and helped to be as productive as possible. All the more reason to ensure that red flag absences – for example those that could become long-term – are identified and supported as early as possible.

Most people welcome the tough measures contained in the Welfare Reform Act 2007 which are designed to provide more help and support for individuals claiming incapacity benefit.

However, the initial assessment to determine the nature of this support may not take place for 10 months – in our opinion far too late to be confident of a successful outcome.

In fact, our experience at Legal & General demonstrates that weeks four to six are the tipping point when it comes to helping individuals back to work – an area where we have been able to achieve success rates in excess of 70%.

There is going to be even more pressure on employers to keep staff working longer, both from the government and from individuals who cannot afford to retire early. This is going to put more strain on the cost of providing many benefits, particularly for private medical insurance but also for group income protection.

Older staff tend to suffer more long-term absence and we are already seeing a shift in the support required for arthritis, heart problems and tumours, all of which are more prevalent in the older age group.

As companies move from final salary to money purchase pension schemes, more employers are beginning to realise that their staff are missing out on the ill-health early retirement benefits that were previously available. And even within final salary schemes, employers are feeling the pressure of trying to support promised enhanced ill health early retirement benefits out of an ever-diminishing pension pot.

The good news is that a number of solutions are available to help employers adapt their benefits packages not only to make them more relevant to today’s circumstances but also to future-proof them for the next 10 or even 20 years.

These solutions range from reviewing the packages offered to different groups of staff to changing from own occupation to suited occupation, limiting the term or introducing flexible benefits – an option that is becoming more popular.

This could involve a sophisticated salary sacrifice flex scheme or a more simple approach whereby the company provides a core benefit and then gives its staff the option to increase the amount of benefit and/or extend the period.

In the past, companies have tended to avoid changing their benefits packages but nothing stands still forever and the crunch may be just the catalyst needed for change.

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