Voluntary benefits can either be installed free of charge or for a fee. However, itÂ’s not as simple as choosing the package that is cheapest; employers need to be able to offer a service to employees that they trust. We look at the variety of different voluntary benefits providers offering bother services and the pros and cons.
Case studies – Ajilon, United Biscuits.
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We’ve all heard that there is no such thing as a free lunch. But is a voluntary benefits package an exception to the rule? Certainly providers which do not charge for their package argue “yes”. Naturally providers who do charge – anything from £4 to £24 per person per year – counter “no”. So, what is the truth? And what are the pros and cons of both approaches?
First, some background. To be clear, voluntary benefits typically consist of a range of financial, medical and lifestyle products that employees can select and buy whenever they want, as often as they like. Crucially, their choices are available at specially negotiated rates. The discounts start at around 5%, going up to 40%, and can be placed on any number of products, ranging from dental cover to travel insurance, high street shopping to gym membership, family days out and wine clubs. Available for many years, either for free or for a fee, it is only recently that voluntary benefit packages have started to enter the HR radar.
As for their purpose, experts reckon there are three. For employers which don’t offer any benefits, a voluntary benefits package is said to be a starting point that is quick, easy and available at a low price or no cost at all. For organisations that offer some benefits but are looking to flex them, a voluntary benefits package can be a useful halfway point, giving employees an opportunity to adapt to the concept of picking and choosing what options are best for them. Thirdly, for organisations that offer relatively advanced benefits, a voluntary benefits package is thought to be the icing on the cake.
Those are the recruitment and retention advantages of voluntary benefits plans, but what about employees’ take-up? There actually seems to be very little of it. Figures indicate employee useage can be low, narrow and sporadic. According to Martyn Phillips, chairman of industry body, The Benefits Alliance, take-up rates can often be just 1%, generally rising to a maximum of only 5%. Phillips points out, however, that those staff have a real sense of appreciation. “People feel they are gaining a useful, tangible, valuable benefit. And that ought never be underestimated.”
And so to the crucial question: if you are going to introduce a voluntary benefits package should you go with a free or a fee-charging provider? Some insiders say this question is a no brainer – why pay? Anecdotal evidence suggests the majority of companies wanting a package agree with this answer. But others insist it is a far more complicated question and by no means is it just about money.
To be sure, fee-charging providers make their money by taking a flat, annual charge. This will deliver a bespoke menu of discounted products, served up in a brochure and, usually, on a website too, both of which will be custom designed to match the company’s branding. There will also be some sort of communications and promotions programme, plus ongoing scheme management and advice.
Free providers can provide a similar type of service, though arguably not with the same degree of flexibility as they are run on a different business model. This is because free providers are generally owned by banks and insurance companies that include many of their own products in schemes, which yield a profit whenever an employee buys them. Over time, it is calculated that this profit is enough to cover the cost of installing and maintaining the whole of a voluntary benefits package.
Some industry insiders insist this way of working is problematic. They point to ethical and logistical issues. To the ethical first. Richard Davies, business development director of Lifestyle, a paid-for voluntary benefits package from P&MM, is not alone in saying that companies which select a free provider “effectively turn their employee base into a consumer base and leave them open to be aggressively marketed and with products that may not even represent the best value. All that is just not moral”.
The free providers reply: “this is simply not how we operate”. CBS, part of Combined Insurance, is one of most well established players and its managing director, Fraser McCarthie, says that while he understands the charge, he does not accept it, attributing it to mere cynicism and self-interest. He stresses that free providers “do deliver good value for both companies and their people”.
If that’s the ethical issue considered, what of the logistical? Alistair Denton, managing director of the fee-based voluntary benefits provider Motivano, speaks for many critics when he says that “free providers are not geared up to provide a full and proper service”. He believes that instead of designing exclusive package branding, they design co-branding, highlighting their own logo and that of their partners. He adds that instead of creating a seamless, integrated website they create an unwieldy portal where users must click in and out of various links to access different products. And instead of following through with a communications and promotions programme, free providers leave their clients to their own devices.
Not surprisingly, once again the free providers reject the criticisms levelled against them. Matthew Ansell is the marketing director of Bringme, an offshoot of Lloyds TSB and one of the largest free providers. He explains clients receive a voluntary benefits package that is wide and varied, tailored to their needs and their livery, and that, if anything, free providers have to supply even more ongoing support because they are so dependent on the employees actually taking up the package.
One thing is certain. The battle over fee-based and free voluntary benefit packages will continue. The challenge for human resources departments, as always, is to back the side that is right for them, without being caught in the crossfire.
Who will come to dominate the voluntary benefits’ market, free or fee-charging providers?
One theory says fee because its free competitors are not financially viable and to survive they must adapt. There are two signs to suggest this could already be happening. Youatwork, once owned by Royal & Sun Alliance and now by Barclays, recently transformed itself into a fee-based provider. “We were not covering our costs, let alone making a profit,” says managing director Gerry Callaghan. His explanation is echoed by Mark Eaton, a director with the Personal Group, that specialises in insurance products and financial advice, which has also begun to charge for its previously free service. Eaton says, “We were not recouping our spend.”
But yet another theory argues that the free providers will survive and thrive. Mark Dixon, business solutions manager for the HR software company 4th Contact, puts this case forward. “Free providers will grow and grow because more and more HR departments will think ‘why not – the effort is minimal and the cost is nothing’.”
Recruitment consultancy Ajilon realised it had its own recruitment problems and decided to introduce flexible benefits as a solution.
Anne Robson, group HR and training director, says: “The company did this gradually, starting with a voluntary benefits package launched this spring. We thought this would be a good way of easing the concept in.”
When it came to picking a provider, Robson says it was crucial to go with a fee-provider, in this case Motivano. “It is really important for us to be upfront about how a package works. We wanted to be able to be transparent about where the offers came from and why we chose them, over another. We wanted our employees to know there were no vested interests.”
United Biscuits insists that the most important aspect of voluntary benefits is the service, not the cost. This is what drove its decision to change providers earlier this year. Its existing package, a paid for one, was considered disappointing so an alternative was sought and Bringme, the free provider owned by Lloyds TSB was chosen. “They offered the best solution to our needs,” says United Biscuits’ reward specialist Liz Inglis. “The fact that we weren’t going to be charged was a bonus. They have gone on to give us a bespoke package, available online and offline, with marketing that looks like it is our own, and excellent help and backup. And yes, we did look for the catch. But we didn’t find one.”