Flexible benefits: Benefits take-up boosted by flex

If you read nothing else, read this . . .

When a standalone benefit is subsequently incorporated into flex, take-up usually goes up.
Even if the employer makes no real effort to improve participation, having all the benefits in one place and annual communication around renewal is enough to have a positive effect.
It may be necessary to limit employees’ ability to flex down benefits, such as healthcare, if wider corporate objectives are to be achieved. n Preferential pricing may also be used to encourage employees to opt for one benefit rather than another.
Salary sacrifice arrangements have proved to be a useful tool in encouraging participation in pension schemes.
Offering too much choice in a flex scheme from day one could leave staff bewildered and have a detrimental effect on take-up rates.

Take-up of a wide range of benefits can be boosted by incorporating them into a flex scheme, which raises their profile with employees, says Peta Hodge

Given the cost and effort involved in implementing benefits for staff, it is little wonder employers want to ensure good levels of take-up. Many in the industry say incorporating previously standalone benefits into a flex scheme can help to increase staff response.

Matt Waller, chief executive officer at Benefex, says: “Pretty much in every employer, you will see a natural increase in take-up. They will see additional take-up on top of that if they then focus and do specific messaging around particular initiatives.”

So, for employers looking to increase take-up across the board, or of particular benefits to meet corporate objectives, flexing these benefits might seem a good idea – but they should consider whether this is the right solution for their organisation.

Simply having all their benefits in one place is a good starting point. This makes it much easier for employees to find out what benefits are available to them – an important prerequisite for improving take-up.

Charitable giving gets a flex lift

Jacqueline Otten, head of flexible benefits consulting at Towers Watson, says one minor benefit she has seen receive a considerable boost when incorporated into a flexible benefits plan is give-as-you-earn or charitable giving schemes. “Often these are tucked away somewhere off in the HR department and are not that accessible,” she says.

Offering such benefits through a flex scheme increases their visibility. This positive effect is amplified by the structure of flex, which requires employers to communicate it each year during the annual renewal period.

When benefits are offered on a standalone basis outside a flex scheme, it can be easy for employees to miss out because, for example, they happen to join the organisation just after a particular communications exercise has gone out, says Waller. With flex, even if employees miss out the first time round, they know they will have another opportunity to take up a benefit the following year.

Manesh Patel, head of implementation at You at Work, says flex can be habit-forming. “Every year, employees know there is going to be a flex renewal window, so it becomes the norm for them to think about benefits at a particular time of year.”

Options such as pension contributions offered via salary sacrifice benefit a lot from this. “It is easier for people because it is on an ongoing annual cycle,” says Otten. “Because they are having to enrol each year, people are much more aware of their match.”

Doing more with communication

Of course, employers can do a lot more with flex communication than simply highlighting the options at annual renewal time. Waller says: “Flex is structured in a way that enables employers to segment messages to specific groups or to offer particular benefits in a way that supports wider messages or corporate initiatives for specific things, such as health and wellbeing.”

Although any communication should help take-up, employers should take time to ensure it is effective. Mike Tyler, managing director (health and productivity) at Buck Consultants, says: “A flex plan that says ‘you can take or leave all of this’ is likely to lead the employee to think their employer is not giving them anything, whereas if it is structured as a total reward package that says ‘look, your salary might be £40,000, but with bonuses and other benefits it is really £60,000, and now you have got some discretion over how you use that’, then employers are likely to get a better reaction.”

However, offering too much choice through flex can be detrimental to take-up. Although moving benefits into a flex scheme will, in most cases, result in increased staff participation, Buck Consultants’ Tyler warns that this may be undermined if the scheme offers too much choice from day one.

“It is human nature,” he says. “If you give people too much choice, they make no choice. When employers first move to a flex programme, they should make it useful to the individual, but not overextend themselves. I believe they are better to go from no choice to some choice and each year, on a planned basis, widen it out.”

Incremental increase in take-up

Employers need to be patient and expect incremental increases in take-up over a number of years, rather than a sudden surge on day one. Tyler adds: “What we have seen is that in a flex plan, the number of people making choices away from the default position – which effectively would have got them back to where they started from – is relatively small at first, then each year, as it progresses, [employers will] see more people make more decisions away from the default.”

The default position within flex is, of course, another important tool in maintaining and, ultimately, boosting, take-up.

Tyler says this is a way of encouraging staff to make better decisions. For example, if an employer has the strategic aim of improving employees’ health, this might mean ensuring that staff are always covered by private medical insurance, at least to a core level. Employers can then offer flexibility by allowing employees to opt for higher levels of cover for themselves, for example, or by extending coverage to other family members.

Another approach is to give the appearance of flexibility on healthcare benefits but to discourage flexibility downwards by giving no cash value to employees who opt out. Many flex schemes are designed so that once an enhanced level of medical benefit is chosen, this becomes the new default option. This has the effect of gradually ratcheting up the level of cover provided to the individual over time.

Drop down to core level

Otten says: “I used to work with schemes that used to drop down to the core level every year and it was such hard work getting the take-up back up each time.”

For employers hoping to improve the health of their workforce by boosting take-up of benefits such as health screening, there is also the option of tilting the playing field through pricing.

Tyler says: “The simple knee-jerk reaction would be to say ‘if this costs x to buy from the insurer, then we will pass the whole cost on to the employee’. But, of course, it is possible to structure the plan through pricing to make it better for the employee to buy one benefit rather than another.”

Similarly, a growing number of organisations are moving their pension arrangements into their flexible benefits schemes, enabling staff to make tax-efficient contributions via salary sacrifice arrangements. In effect, they are looking to ‘buy’ increased participation using employee tax and national insurance (NI) savings.

Defined contribution pension

BNP Paribas Real Estate is one organisation that has gone down this route, encouraging 55% more of its employees to opt into its defined contribution pension scheme as a result of putting it into flex.

Towers Watson’s Otten says a number of employers have enhanced their offering by sharing the employer’s part of the NI saving. “It certainly is a way of getting people interested and contributing more, and it is a tool we have used quite a lot,” she says.

The flex structure offers a number of tools to boost benefits take-up, and employers must decide which ones they should employ to deliver the best results on their wider business objectives.