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- Pay and set working hours were the core benefits for most working people when Queen Elizabeth II ascended the throne in 1952.
- The rise of employee benefits stems partly from employers’ attempts to circumnavigate pay increase demands from unions.
- Defined benefit (DB) pension schemes peaked in the late 1960s, as state pension provision failed to keep pace with a rise in living standards.
Case study: Cadbury made life sweeter for workers
Housing and education were key features of the employee benefits package at Cadbury Brothers in 1952, thanks to founder John Cadbury’s sons.
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In 1861, Richard and George Cadbury took over management of the Cadbury factory on Bridge Street, Birmingham, and began to take an interest in employees’ welfare. They created a new factory outside Birmingham, which they named Bournville, which became known as ‘the factory in the garden’.
In 1895, the brothers built housing for their workforce, which turned into the Bournville Village Trust in 1900.
Young staff attended the Bournville Day Continuation College for one day a week until they were at least 18 years old. Cadbury-funded scholarships were available on graduation.
Shop committees were the first point of contact for employees’ work-related issues, except wages and hours, which were negotiated by trade unions.
Savings vehicles included the Bournville Pension Fund, into which employers and staff made contributions. There was sick pay of up to 90% of base wage, and Workers’ Funds available for prolonged illness. A Dependant’s Provident Fund paid a lump sum to the next of kin if a male worker died under the age of 65.
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As the Queen celebrates her Diamond Jubilee, Clare Bettelley looks back over the past 60 years to trace the origins and evolution of employee benefits and reward in the UK
The vast array of employee benefits currently on offer from employers across the UK is a far cry from those available when Queen Elizabeth II ascended the throne in 1952.
A report published in February by the Chartered Institute of Personnel and Development (CIPD), entitled Britain at work in the reign of Queen Elizabeth II, found that 60 years ago, the best many employees could hope for in the way of reward and benefits was a basic, relatively low wage and, in some circumstances, the option to work flexibly.
John Philpott, chief economic adviser at the CIPD and author of the report, says: “A lot of workers then just got a pay packet containing cash at the end of the week. Salaries were very rare. They may have got a bit for pensions in some organisations, depending on the place, but the main benefit would have been holiday.”
Philpott says an allowance of up to two weeks’ holiday on top of the statutory entitlement of six public holidays emerged in the early 1950s, with staff in unionised organisations tending to enjoy this benefit more easily than their peers working for employers with no union set-up.
The average weekly wage was about £7.50, which Philpott says is equivalent to around £500 a week now. It was not until the 1960s that a formal employment contract was created and pay rates were more tailored to employees’ particular roles.
The origins of employee benefits can be traced back to Roman times, when burial clubs covered the cost of funerals and provided financial support for remaining family members. Fast forward to the 19th century, and in 1832 businessmen Samuel Tuke and Joseph Rowntree founded Friends Provident (which became Friends Life after its merger with Resolution in 2009) to provide life assurance for members of the Society of Friends, the formal name for the Quakers.
Employee welfare
Notable pioneers of a more comprehensive approach to employee welfare arrived with manufacturer Lever Brothers, which was founded in 1885 by William and James Lever. The brothers developed a village in the Wirral, which became known as Port Sunlight, to house employees in a bid to optimise their health and happiness.
Similarly, the Cadbury Brothers provided housing and education for staff in their Bournville village (see box below).
This employer paternalism was under threat during Queen Elizabeth II’s first decade on the throne. Much like today, there was a pensions crisis. The UK had just had seven years under a Labour government, and a very radical one at that.
After the 1945 General Election, the Labour party, under the leadership of Clement Attlee, introduced a basic state pension under the National Insurance Act 1946, which came into effect in 1948 and was funded by employees’ national insurance (NI) contributions. This was a far cry from the state-funded scheme proposed by economist and social reformer William Beveridge in his 1942 Beveridge report, which also suggested the foundation of a welfare state to provide national cradle-to-grave social security support.
Despite the fact that pensions were not fully funded by the state, it did not take long for panic to arise over state pension expenditure. In a 2002 working paper entitled Constructing the public-private divide, historical perspectives and the politics of pension reform, Warwick University professor Noel Whiteside, in her capacity as a fellow of Zurich Financial Services, says: “In Britain, official forecasts concluded that, thanks to demographic change and then the impact of inflation, state expenditure on pensions was due to double between 1960 and 1970, at a point when exchequer contributions to national insurance (NI) were being cut from 33% to 14%.”
According to the Zurich report, the Conservative government spent much of the 1950s championing occupational pension schemes to help address this issue, which led to the creation of an earnings-related state pension scheme offering tax incentives for employers with occupational schemes. NI contributions were reduced for employees who opted to contract out of the state scheme.
Pensions explosion
Earnings-related occupational pensions were in existence before World War II, but the combined effect of the shortfall in state pension and higher standards of living resulted in an explosion in take-up of occupational pension schemes in the 1950s and 1960s, with defined benefit (DB) schemes being predominant at that time.
A two-tiered pension landscape soon emerged, consisting of employees with access to an occupational pension scheme and those without, who were forced to rely on the state pension.
This situation became a key concern of Margaret Thatcher who, after becoming prime minister in 1979, attempted to replace the state pension provision, which by then included the state earnings-related pension scheme (Serps), with compulsory private workplace pensions.
According to Financial Times commentator Nicholas Timmins in his 1995 book, The five giants, a biography of the welfare state, this plan was abandoned when the true cost of introducing compulsory occupational pensions, resulting from the tax relief involved, was revealed. Instead, the Thatcher government reduced the appeal of Serps by stating that it would pay only 20% of lifetime earnings, not 25% of the best 20 years, and introducing a range of incentives to encourage employees to opt out of Serps and move into an occupational scheme.
According to Timmins, by 1993, more than five million people had opted out of Serps, far more than the 500,000 forecast. The opt-out ‘scandal’ is just one of a range of factors that have contributed to the demise of DB provision and shortfalls in employees’ pension pots.
According to John Kelly, professor of industrial relations at Birkbeck College, DB pension take-up peaked in the late 1960s, with around eight million members. “Then there was a long decline as employers began to dismantle schemes, either through restricting entry, by removing employees from them, or by switching to defined contribution [schemes],” he says. “Employers have now either abandoned pension schemes altogether or, where they have kept them, they have shifted the risk onto the employee.”
One of the major drivers of workplace pensions provision as an employee benefit was employers’ ability to use them as a bargaining tool to circumnavigate pay increases when locked in negotiations with trade unions.
Occupational healthcare provision was no different. According to Timmins, around 500,000 people in the UK had private healthcare by 1955, and this rose to just under one million by 1960 and to 2.3 million by 1974. By that time, two-thirds of these individuals were in employer-provided schemes.
The UK first took up critical illness insurance as an employee benefit after it was pioneered in South Africa by cardiac surgeon Marius Barnard, who launched the first critical illness product in 1983, interestingly called ‘dread disease insurance’.
According to Timmins, employee benefits became mainstream in the workplace in the 1980s, largely because of the tax relief allowed on them. Government intervention has also been instrumental in reshaping employee benefits packages in recent decades. For example, the introduction of the minimum wage in 1999 put considerable financial strain on many employers and, consequently, their benefits offerings.
The recent removal of the default retirement age is also expected to cause long-term problems for employers, such as the conundrum of trying to retain a competitive benefits package when faced with the diverse needs of an older workforce.
And with pensions auto-enrolment on the horizon, the task of benefits professionals is only likely to become more complex.

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