Benefits Research 2011: Sponsor’s comment: A delicate balancing act

The struggling economy is still dictating many employers’ actions on benefits, says Stephen Watson, head of defined contribution at Alexander Forbes Consultants and Actuaries.

Regardless of employer size, a common theme emerges from this year’s research – the very real twin challenges all organisations are facing: to increase productivity levels while, at the same time, driving through cost-control measures.

For many HR and benefits managers, this can seem an impossible task, especially with auto-enrolment now a reality and just around the corner. A delicate balancing act is required.

Encouragingly, however, the latest research shows that only 4% of all respondents are considering reducing existing employer pension contribution levels as a way of mitigating some of the costs of auto-enrolment. This is a welcome sign for all existing pension scheme members, many of whom will have been expecting a reduction in their employer’s contribution levels.

More than 40% of employers across all organisation sizes have indicated they will be looking to absorb the cost of auto-enrolment into other areas of the business. These ways include offering only statutory levels of contributions to some sections of the workforce such as the lower paid or where there is a high turnover of staff (13%) and reducing other benefits costs (11%).

In terms of the latter point, 50% of medium to large employers with more than 500 employees reviewed benefits suppliers in the last year in an attempt to reduce costs and/or obtain better value. Going forward, almost 60% of respondents are looking to manage costs, by reviewing the terms of benefits to cap or cut costs, or re-negotiating insurance-based benefits to achieve savings.

In the group personal pension plan market, this fits in with our own experience, which is showing a definite downward pressure on annual management charges and the cost of ancillary benefits and services.

With increased costs on the horizon, it is disappointing to see that only about 50% of employers with 1,000 or fewer staff that offer salary sacrifice have this as an option for pension scheme members and only 6% of employers of all sizes have introduced this option over the past 12 months. Despite last month’s announcements on the possibility of income tax and NI contributions being combined, salary sacrifice still offers a great opportunity for both staff and employers to save costs and/or increase benefits.

Maybe again as a sign of the current economic conditions, over 40% of employers offering salary sacrifice arrangements do not pass on any of the employer’s NI savings to staff. Of those employers that do pass on any of their savings, only 32% pass on all of it to employees.

We see this as a major change in corporate behaviour where, historically, our experience has shown that most employers have passed on 100% of any NI savings to employees.

However, as we approach 2013, which seems to be the magic year for most industry changes, including auto-enrolment and the Retail Distribution Review, different approaches to employee benefit design are inevitably required.

A year ago, we saw employers looking to align their employee benefits programme to their overall benefits strategy and placing emphasis on maximising the value of benefits in employees’ eyes. This need to increase staff perception of benefits still remains a key priority for 65% of all employers, as does the search for greater flexibility in benefits, for 54%. However, with strong economic recovery in many sectors still elusive, the focus is very clearly on increasing value and, where possible, reducing costs.

Read more articles from the Employee Benefits/Alexander Forbes Benefits Research 2011