Voluntary Benefits & Salary Sacrifice Research 2007

What is on offer
Salary sacrifice
Sourcing providers
Employers’ plans
Sponsor’s comment: Delivering what is needed


Voluntary perks have an important role to play in adding value to a package, but cost is no longer the big issue it once was, says Debbie Lovewell

When Employee Benefits last conducted research into voluntary benefits in 2005, employers’ main reason for offering such schemes was to provide staff with access to as wide a range of benefits choices as possible. However, while voluntary benefits provide a cost-effective way of offering employees extra perks and help enhance an organisation’s package with additional options, employers now seem to be more concerned with ensuring that any scheme adds value for both the organisation and staff.

Attitudes around the cost of offering a voluntary benefits scheme have also changed. Back in 2005, 54% of respondents said it was important that the voluntary benefits they offered didn’t cost them anything. This year, the figure has dropped to 39%.

Furthermore, employers are now finding that they are having to think about how their discounts can compete with the prices offered by online retailers. One way is by offering a wider choice of providers for each product.

Three-quarters of respondents provide voluntary benefits for employees, which is a drop from the 90% who did so in 2005 when Employee Benefits last conducted specific research in to this area.

table%203_3This may be because voluntary benefits providers are now more inclined to charge employers for schemes or respondents do not classify some perks as voluntary benefits. Of those that provide voluntary benefits, 76% (286 respondents) are responsible for their implementation.


What is on offer

Healthcare perks such as private medical insurance and life assurance have risen in popularity, while pensions remain a priority, says Debbie Lovewell

With increasing levels of sickness absence and the debate over who should be responsible for the nation’s health rarely out of the headlines, it is perhaps unsurprising that the past two years have seen a rise in the number of employers that offer private medical insurance (PMI) as a voluntary benefit. Just under three-quarters (72%) of employers now offer PMI, up from 58% in 2005, making it the most commonly-provided voluntary option.

Snapping on its heels is life assurance. The percentage of employers offering this benefit has also risen significantly, from 49% in 2005 to 69%.

With the cost of premiums still reported to be rising in many instances, and an ever-increasing focus on gaining a return on investment on benefits spend, it seems that many employers are using their voluntary arrangements to pass at least some of the cost on to employees.

Pensions also remain high on the priority list for many employers. Approximately two-thirds of respondents now offer the means to make additional voluntary contributions to a defined benefit or money purchase pension scheme (68%) or access to a group personal pension plan (GPP) (66%), rendering both options more popular than two years ago. Stakeholder pensions, meanwhile, are not too far behind, being offered by 48%.

Providing staff with the means to contribute to or top up their pension fund can help to create a favourable impression of an organisation, often at very little cost. Setting up pension contributions through a salary sacrifice arrangement, meanwhile, can even save both employers and employees money.

At the other end of the scale, the popularity of employee share schemes offered as voluntary benefits has fallen considerably over the past two years.

Just 16% of employers now offer a HM Revenue and Customs-approved sharesave scheme, compared with 35% two years ago, while the number of respondents who provide staff with a HM Revenue and Customs-approved share incentive plan (Sip) has fallen from 21% in 2005 to 14% this year.

Concern for the environment appears to be taking hold as 4% of respondents are now offering carbon credits or offsetting as an option.

Historically, employers have often looked to voluntary benefits schemes to offer staff as wide a choice of benefits options as possible. When it comes to the number of options offered by this year’s respondents, however, employers seem to prefer to provide quality over quantity. More than half (53%) of respondents say they offer less than 10 options through a voluntary benefits scheme for staff, while just under a quarter (23%) offer between 11-25 perks. Just 4% of respondents say they offer more than 1,000 benefits through their scheme.

Offering a smaller number of benefits that are tailored to suit an organisation’s workforce demographic can often be much more effective than taking a much wider ‘hit and hope’ approach by providing as many voluntary options as possible. Providing a large choice of perks may initially appear overwhelming for staff, particularly if they are unable to find what they are looking for quickly. If employers do offer a select number of options, however, this may prove demotivating if they are not tailored to suit their employees’ interests and life stages.

Placing details of perks on an organisation’s intranet or internet is the most the favoured form of communication, most likely because it enables employers to create a reference source that can be easily updated. This usually supports other, often more traditional and direct forms of communication such as booklets or brochures (63%) and induction meetings (61%), which remain popular. These are both good ways of reaching staff in industries where employees do not have access to a computer during the working day.

A handful of employers, however, have begun to supplement their messaging with new forms of IT, such as videos (used by 3%), webinars (2%) and text messages (2%).

Although increasing numbers of employers are focused on ensuring that employees value the benefits on offer, only a relatively small percentage (15%) use total reward statements to communicate the savings that staff make through taking up voluntary perks.

Many employees, therefore, may not realise the true value of what they receive from their employer.

Encouragingly, just under half (49%) of respondents say that they are considering using total reward statements to communicate the value of the savings made by staff through voluntary benefits. If they were to do so then they may find that the move helps to enhance employee engagement, loyalty and performance.


Salary sacrifice†

Concerns around the complexity of salary sacrifice schemes appear to have abated and such perks have undergone substantial growth, says Debbie Lovewell

The government’s removal of the tax break around its home computing scheme last year dealt a severe blow to the benefits community leaving many employers in shock and wondering whether they should risk introducing other perks that can be payable through salary sacrifice arrangements.

Yet, employers appear to have overcome their concerns and the popularity of offering perks on a voluntary basis through salary sacrifice has continued to increase. More than three-quarters (77%) of respondents now offer voluntary benefits on this basis, up from 68% in 2005.

Employers are also looking to make the most of tax-efficient legislation around other perks by offering salary sacrifice on food in on-site restaurants and bus travel, which are options now provided by 5% and 4% of respondents respectively.

The popularity of voluntary benefits offered through a salary sacrifice arrangement is also borne out by the growth in the use of individual perks offered in this way. Just a handful of respondents do not offer childcare vouchers through salary sacrifice. For example, 92% of respondents have now opted to offer the perk in this manner, compared to 71% in 2005.

Bicycle loans have also seen substantial growth over the past two years. In 2005, just 8% of employers offered a bikes-for-work scheme through salary sacrifice to staff, compared with 46% of respondents this year. Mobile phone loans have also increased in popularity as an option.

Such growth may, in part, be due to employers’ increased understanding of salary sacrifice and how such perks operate. Fears around the complexity of setting up and administering salary sacrifice schemes have fallen considerably. Just 6% of respondents now believe that benefits offered in this way are too complicated to set up, and administer, compared with 24% and 23% respectively two years ago.

The two main reasons for offering benefits through salary sacrifice, however, have not changed. Respondents still believe that is a good way to save employees money and that it forms an important aspect of employers’ HR strategies. The savings employers make also prove useful in funding other perks, according to 30% of respondents.


Sourcing providers

As increasing numbers of employers pay for voluntary benefits plans, they may look to negotiate direct with local suppliers to help keep costs down, says Debbie Lovewell

The last few years have seen a substantial rise in the number of employers that pay a fee for their voluntary benefits package, not least because the number of providers that offer their products for free has dwindled. Half of employers now pay a fee for their voluntary benefits scheme, compared with less than a third (32%) two years ago.

Most specialist third-party administrators now charge a fee for at least some of their services, even if they previously offered some of these free of charge.

Negotiating deals for staff directly with local businesses or some product providers, however, typically doesn’t come at a cost, so it may be that the 42% of respondents who do not pay a fee for their voluntary benefits package, and would not be prepared to start doing so, have negotiated perks in this way.

In fact, dealing with providers directly is employers’ favoured method of sourcing the voluntary benefits that they offer – 40% currently do so.

However, the percentage of respondents which use a specialist voluntary benefits company to either set up and negotiate deals on their organisation’s behalf or to provide an off-the-shelf package, has risen over the past two years.

More than a quarter (27%) of respondents now source their scheme in this way, compared with 18% in 2005.

This method still appears to be the domain of larger organisations, however, possibly due to the costs involved.

Of those employers that use a specialist voluntary benefits provider to source their scheme, just over a third (34%) of respondents employ a workforce of 1,000 staff or less.

More than a quarter (28%) of respondents, meanwhile, use a combination of these two approaches when sourcing voluntary benefits, compared with 35% two years ago.

Voluntary benefits schemes are often used as a stepping stone towards offering a flexible benefits plan. The very nature of such schemes means they are a good way for employers to introduce the concept of choice around benefits for staff, before moving to a full flex roll out. This also enables employers to test the water for flex by offering a range of benefits with the minimum of effort. But despite this, just 13% of respondents plan to move to flex in the next 12 months.

However, as we have seen time and time again, many employers that plan to introduce flexible benefits never do so for a variety of reasons, such as cost constraints or due to a finding of unsuitability following a feasibility study.


Employers’ plans

Environmental initiatives and corporate social responsibility have risen rapidly up many organisations’ agendas over the past few years in an attempt to project a positive business image. As a consequence, employers have also begun to examine their operations internally not only in relation to working conditions but also in respect of reward. This makes sound business sense as staff have begun to attach greater importance to working for a responsible employer.

The benefits market has responded accordingly, with a number of providers launching, or adapting, products with an environmental ethos. It is perhaps little surprise, therefore, that carbon credits or offsetting schemes rank as the top benefit that employers plan to add to their voluntary benefits scheme over the coming year.

Dental insurance, meanwhile, follows closely behind, as many employers are planning to offer staff who are struggling to obtain treatment on the National Health Service an alternative.

Health screening and financial advice or education tie for this year’s third place. Employees’ physical and financial wellbeing are both issues which have received much media attention over the past two years and, as a consequence, employers’ interest in these perks has increased.

Staff who feel that they are supported in these areas may often be more likely to be more productive than those who have concerns about their finances or health.

Very few employers plan to remove any options from their voluntary benefits scheme. This ties in with what we have seen in practice, as many employers use voluntary schemes to offer as wide a choice of perks as possible. It will be interesting to see if this changes at all over the next couple of years as employers continue to look to tailor schemes to better suit their workforce demographics.

The tax efficiencies attached to offering certain benefits through a salary sacrifice arrangement makes such perks a popular choice for employers. Childcare vouchers, for example, are offered by the majority of our respondents (91%), which could account for the fact that just 2% say that they plan to introduce these on a voluntary basis.

With an increasing focus on both employee wellbeing and environmental issues, it is perhaps not surprising that tax-efficient bicycle loans are the most popular benefit that respondents plan to introduce on a voluntary basis. Just under a quarter (24%) say they intend to do so.

Employers are also showing increasing interest in offering bus travel to staff paid for via salary sacrifice. This also supports employers’ environmental strategies, which may be behind the fact that 8%of respondents intend to introduce it for staff.

Table%20Extra%203This perk has yet to become widespread and a number of employers may be waiting to see howitworks in other organisations before going ahead with a tax-efficient scheme themselves.

Salary sacrifice arrangements on food in onsite restaurants, which 9% of respondents plan to introduce, is also emerging as a key salary sacrifice perk.

However, this benefit may have a limited appeal as it relies on employers having the necessary on-site restaurant facilities and technology in place before they can offer it to staff.


Sponsor’s comment: Delivering what is needed

This article is brought to you by our sponsor AIG Benefits.

Employee take up can often be directly related to the delivery method of a product, says Terry Pegg, head of sales (UK & Ireland) at AIG Benefits

The voluntary and salary exchange benefits marketplace, like many others, is experiencing rapid change. New methods of accessing and distributing voluntary benefits are becoming more widely used by employees, particularly online routes; while salary exchange benefits, such as green and health-related products, are increasingly in demand by both employers and employees.

The future of any market lies in providers becoming more reactive to the needs of their customers. This is particularly true for the employee benefits market, where it is no longer acceptable for providers to develop offerings that do little to meet the needs of organisations and their increasingly diverse and regularly-changing workforce. We need to find real ways of genuinely extending the buying power of employees every month; not just when they take a holiday and park their car at the local airport at discounted rates.

Communication is a key element of the voluntary benefits market and the methods used to reach employees need to adapt and evolve as new media becomes available. An employee’s level of engagement with specific benefits products, which is a basic reason for establishing a benefits package, may be directly affected by the method of communication that is used to explain or deliver it.

For example, products that are inherently more complicated, such as personal accident or cancer-associated policies, are often better understood by individuals if explained at a face-to-face meeting. Despite the advances of online technology in explaining and delivering voluntary benefits, the personal touch is still welcomed by many existing and potential customers where the product is not commoditised and where they want the opportunity to discuss it and decide whether they feel it is appropriate for them.

As benefits providers, we all need to listen closely to the people that we serve and work hard to anticipate their needs. The growing take-up of green benefits is an example of how, as an industry, we have successfully managed to do this.

Green schemes, including recycling, green energy and healthy eating, are quickly being adopted by businesses that see the benefit of offering their people options that genuinely make an impact on their personal lives. Also, given their growing status on the corporate agenda, green benefits have the potential to contribute to an organisation’s environmental performance and play a major part in developing green policies and strategies throughout the business.

The future, it seems, is positive for the voluntary and salary exchange benefits markets as long as providers continue to observe basic business rules. The challenge for all those in the industry is to continue to innovate and develop new products that meet the needs and requirements of an ever-changing and dynamic workforce, as well as using the most appropriate communication channels to deliver them. By doing so, we will keep the market fresh and ensure that individual employees and their employers get the best products for even the most competitive budgets.

The views and opinions in this article are those of our sponsor, AIG Benefits, and do not necessarily reflect those of www.employeebenefits.co.uk.