How employers can manage benefits providers’ market repositioning

Changing government legislation around childcare vouchers and pension annuities is forcing some employee benefits providers to rethink their service proposition, making it difficult for employers to identify their area of specialism.


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  • Some benefits providers are rethinking their service proposition because of changing government legislation.
  • An increasingly crowded benefits provider marketplace is leaving many employers struggling to identify providers’ area of specialism. 
  • Robust policies and procedures should underpin all due-diligence processes.

According to attendees at the Employee Benefits/Lorica 100 Club thinktank debate in April, benefits providers repositioning themselves in new market sectors is one of the biggest challenges facing employers.

Ian Hodson, reward and benefits manager at the University of Lincoln and one of five participants in the debate, said he expected to see more benefits providers reposition themselves because of changing government legislation. Changes include the introduction of a new tax-free childcare voucher scheme, to be run by a single administrator, NS&I, rather than a range of existing voucher providers, in autumn 2015.

“It’s getting more complicated with things like childcare voucher providers,” says Hodson. “Providers that have a specialist market niche in childcare are suddenly popping up offering cars and bikes. Everybody’s in everybody’s market.”

In his Budget speech in March, Chancellor George Osborne announced his decision to abolish the legal requirement for defined contribution (DC) pension scheme members to convert their retirement pot into an annuity at retirement, prompting much speculation about the future of annuity providers.

Attendees at the roundtable debate said the increasing number of new market entrants, particularly in the health and wellbeing sector, is complicating the task of appointing providers most closely aligned to their organisational and workforce needs.  

But Louise Wesley, director of operations at Busy Bees Benefits, says the repositioning trend is an inevitable evolution of the benefits market that is being fuelled by employer demand.

Busy Bees repositioned itself as a benefits provider and relaunched as Busy Bees Benefits in 2010 after selling its childcare voucher business, Busy Bees Childcare Vouchers, to Computershare Voucher Services in 2009. It now offers bikes for work, car leasing, will writing and retail vouchers, as well as childcare vouchers.

“When we re-entered the market in 2010, we already knew the market had moved on and we couldn’t just be a one-trick pony,” says Wesley. “We came back as an employee benefits provider because that seems to be the demand from organisations. They want everything in one place, rather than having to go out looking around for what they need with different providers, so it was a case of us catching up with employers’ changing demands.”

Wesley says the loss of revenue Busy Bees Benefits expects from next year’s legislative changes to childcare vouchers should be offset by its new product range, which recently saw the addition of a mobile phone salary sacrifice scheme.

Benefit market evolution

Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development, says providers’ repositioning efforts are key to the evolution of the benefits market and are not as haphazard as some employers fear.

“Providers will never get anything to work if organisations don’t take a gamble, and then there would never be an expanding advisory market,” he says. “And whether it’s childcare vouchers or bikes, providers’ processes and systems are probably going to be similar, no matter what the benefit is.”

Cotton doubts that any benefits provider would risk offering a benefit that its technology systems could not cope with.

Roy Edie, senior consultant at Towers Watson, agrees that the benefits market looks set for change. “We suspect the Budget will generate innovation among certain providers, either looking to exploit new markets or find new markets because their existing lines of business have seen a drop-off in activity,” he says.

“However, we see this as generally positive and are sure that the adviser market will also react, so that these new products are assessed and their relative merits for employers are identified.” 

Cotton says employers should obviously be wary of any unusual market repositioning, such as a childcare voucher provider suddenly switching to offer pensions, but generally organisations should be fine as long as they have a robust compliance framework in place. “Organisations that are prepared to give a provider a punt need to have policies and procedures in place to mitigate the risk of that,” he says.

Robust procurement policy

A robust procurement policy will include a due diligence process that helps an employer assess the relative strengths and weaknesses of providers that they invite in to showcase their products.

Matt Duffy, head of online benefits at Lorica Employee Benefits, says employers should consider using their benefits advisers to help them make informed decisions about provider appointments, including whether individual providers can meet their organisation’s objectives.

But employers must be mindful of the fact that some providers will not yet have decided on their future plan of action in response to changing legislation, says Duffy. “One of the biggest challenges for providers is, typically, that decisions are made by government at short notice or really far in advance with very little detail, so it makes them really hard to plan for,” he says.

Sustainable relationships

However, Hodson says the opportunity for employers to build sustainable relationships with providers is an equally important part of any due-diligence process. “Provider appointments come down to product and relationship: these are the two things that employers are trying to weigh up,” he says. “How do they form a relationship that is more than just customer-supplier?”

For example, Hodson says the University of Lincoln has a strong, long-lasting relationship with Northgate Information Solutions, which provides its HR database and is currently installing a new payroll system.

“We signed up to a partnership with it where we said that our procurement process is not just about the product; we want a relationship,” he says.

That relationship includes Northgate offering the university’s graduates the opportunity to take up intern positions with it and, in return, the university helping Northgate to get involved in its student career fairs.

Hodson adds: “There doesn’t seem to be a huge differentiation between providers’ products themselves, so the relationship is really important.”

He says employers must consider whether prospective providers can identify their organisation’s needs and what they can offer long-term as part of their relationship.

The CIPD’s Cotton says employers should also be aware of their legal requirements, particularly around the forthcoming European data protection reform. “If organisations are giving employees’ details to third-party providers, they have to be sure there are policies and processes in place to make sure the data is secure,” he says.

The European Commission proposed a major reform of the EU legal framework on the protection of personal data in 2012. 

Providers’ ability to help employers fulfil their compliance duties should be at the core of their proposition, regardless of any repositioning activity. Once employers have satisfied themselves about this, they can consider the merits of a provider’s service proposition and the potential to create a relationship that will help them become an employer of choice. 

Case study: University of Lincoln studies future relationship with childcare voucher provider


The University of Lincoln invests in building sustainable relationships with its benefits providers.

Ian Hodson, reward and benefits manager at the University of Lincoln, has initiated a conversation with the organisation’s childcare voucher provider, Computershare, about its future business strategy.

This is part of his efforts to understand the possible impact of any market repositioning by the provider on its relationship with it and how the two organisations might work together in the future.

This follows the government’s decision to introduce a new tax-free childcare voucher scheme, which will be run by a single administrator, NS&I, instead of existing providers, in autumn 2015.

Hodson says: “Providers will have to think about what they’re going to offer existing employer clients in order to retain those relationships.”

He is particularly mindful of the loss of national insurance (NI) savings resulting from the introduction of the new scheme. “We have always tried to reinvest the money that we saved in employer’s NI in things like our on-site nursery and family-friendly benefits, but those savings are going to be diminishing now,” he says. 

Providers that expand their service proposition to include an educational element will be particularly appealing to employers in the future, says Hodson.

“They will create a niche market of providers that can turn products into more of an educational tool,” he says. “Providers need to consider personal and professional development and bring in the educational side of things.”

But employers must consider providers’ corporate values as well as their service proposition as part of their due diligence process, says Hodson.

“We ask providers about what they would do to support our student experience and what their values are as a business,” he adds. “We try to test them out in terms of issues that are wider than their product and to look at them as a provider that we’d actually want to be doing work with.”

Viewpoint: David Noble: Employers must map priorities to build strong foundations with providers


Once an employer has written its project specifications, tender documents, undertaken some research and considered the providers it already knows about, what should it do next when approaching a new project?

Well, now is the time for the organisation to evaluate its business needs and objectives and clearly define them. Using its stakeholders to map out priorities will help it to build strong foundations with providers.

The next step is for the employer to rate its organisational needs in order of importance. Is it quality and reliability or speed to market and flexibility when change inevitably occurs that it values most?

Value for money for organisations struggling with tight margins may also be important, while others may prioritise a strong service proposition, a good cultural fit or good risk management and fraud controls. Each employer will have its own specific needs. 

Variety of sources

Research can include a wide variety of sources, as well as an employer’s core stakeholders. Employers may consider referrals from partners or current providers, talking to trade associations, perhaps business advisers and business support organisations, or attending sector-specific exhibitions where they can compare, quickly and easily, the number of providers available for their key needs.

The research stage can help employers to not only whittle down the number of providers, but also help them to get under the skin of potential providers offering important products and services. A concise request for information (RFI), a business process that details a provider’s capabilities, will give employers a lot more information about their final provider choices. 

Strengths and weaknesses

The RFI is an opportunity for providers to clarify their strengths and weaknesses, their capabilities and subsequent fit with an organisation, their growth plans and, of course, financial information to ensure the employer is not forced to bail out a key provider when times get tough. Only then should an employer send out a request for quotation (RFQ) with its full specification.

Employers should always meet their chosen providers and audit regularly once they have signed on the dotted line. Developing good relationships is important throughout the life of a contract; this stage is just the beginning. 

David Noble is group chief executive officer of the Chartered Institute of Purchasing and Supply