Advances in technology have revolutionised the delivery of benefits in recent years and the evolution process is continuing, says Victoria Furness.
The past decade has seen a huge leap in the evolution of technology. Devices that would have seemed fanciful 10 years ago, such as iPods, digital cameras and increasingly sophisticated entertainment systems, as well as the rapid development of online services, have now become commonplace.
Such advances have extended to benefits technology. Historically, most benefits administration platforms were large mainframes, which were very expensive and generally affordable only to big multi-national organisations. But the development of the internet led to significant changes: online technology enabled benefits admin platforms to be built and rolled out more quickly and cheaply. The web also enabled employees to access their perks via self-service portals.
Since then, benefits technology has continued to evolve, with development concentrating on key areas such as improving the user interface to make the software easier for staff to use when selecting benefits; and improving integration at the back-end so employers can automate more benefits processes and make use of management information to help achieve their business goals.
User interface†
Employees' familiarity with accessing information and managing personal matters online, such as shopping and banking, is also driving the evolution of benefits technology. For example, Vebnet is focusing on making the latest developments in its user interface, such as the ability to play music and videos, more appealing to Generation Y. It is these younger employees that Vebnet wants to engage in its communication channels.
James Verner, the company's sales director, adds: "There has got to be something in this for HR as well, so we have also developed more reporting tools and reporting dashboards that enable the business to get a better handle on what is going on in its reward programme."
This type of development has recently been consuming the research and development budgets of most benefits technology providers, particularly those offering flex administration systems. Andrew Woolnough, flexible benefits distribution manager at Jelf Group, says: "When I first started in this market, going live with flexible benefits schemes took about six to seven months. Now there has been a lot of back-end development to make it easy to go live in two to three months."
Platform integration†
Typically, what slows down the implementation of flexible benefits schemes is the integration of different platforms so data can be linked between systems automatically instead of the employee having to key it in twice. The advantage of web-based portal technology is that it enables organisations to plug different systems together to create what looks like a single platform.
Straight-through processing is the natural direction in which flex admin systems appear to be going. Essentially, this means that links between any number of databases are made automatically, so when employees make selections within flex, these are linked straight through to the finance department for reporting, to payroll for any salary deductions, to the pensions team to arrange contributions, and so on.
Because these joined-up systems hold vast amounts of employee data, there have been moves by employers to adopt automated workforce segmentation and communication strategies. Some systems can automatically deliver highly-targeted messages to individual employees at key times (for example, at particular times of the year or during life-changing events, such as marriage). This enables employers to target perks at different groups of staff with varying priorities.
Equally important is how employers use data held in their systems to extract the most value from the benefits they offer. Chris Bruce, managing director of Thomsons Online Benefits, says: "We have developed a very flexible dashboard approach, so employers can pull out any information they want from the technology in exactly the format they want it in."
But it doesn't stop there - benefits technology is now in a new phase of evolution. Systems are being developed and launched that will enable staff to manage all investment and savings-related perks, such as share schemes, pensions and corporate individual savings accounts (Isas), through a single portal. This had previously been left relatively untouched by benefits technology providers, possibly because of the complexity of sourcing real-time information and integrating disparate data sources.
Responding to this gap in the market, JP Morgan Invest has created an integrated savings platform that brings all investment and savings products together, enabling staff to make seamless transfers between assets. Jonathan Watts-Lay, director at JP Morgan Invest, says: "The platform gives you the option to diversify and select funds of your choice, so effectively you can start spreading risk. It also has a set of tools to give you the most tax-efficient position."
Single portal†
After its acquisition of technology firm Vebnet last September, Standard Life has also started to develop an integrated employee wealth plan that will be accessible through a single portal. Ultimately, the portal will bring together Standard Life's existing pensions offerings, along with savings-related perks and flexible benefits.
Employers can expect to see further innovation in the broader benefits space, too. Last May, JLT Online Benefits announced plans to begin work on a new benefits technology platform with a team recruited from Orbit Benefits (now owned by Bluefin). The system will enable employers to consolidate their pensions and benefits on a single platform.
One of the first features of the platform to be released will be a pensions modelling tool that will work across any pension scheme. Charlie Carrick, sales director at JLT Online Benefits, says: "We are trying to be more educational with our benefits technology. The real change will be the use of different types of technology - we are not just talking about the internet, but personal digital assistants (PDAs) and mobile phones - to reach out to lots of people and get them to interact with their benefits."
Forthcoming changes in legislation could drive even more technological developments. Pension reforms due to come into effect in 2012 - including auto-enrolment, compulsory employer and employee contributions, and personal accounts - will require employers to update their admin systems to incorporate the new rules. Jonathan Phillips, head of consultancy solutions at Bluefin Corporate Consulting, says: "We will cater for whatever we need to do with personal accounts and people opting out of schemes. It won't be a considerable technology challenge, though, just a matter of being prepared."
Recession impact†
But despite the raft of technological innovations under way, the economic recession is now impacting on investment in benefits, both by employers looking to improve their benefits provision and by technology firms seeking to develop their offering.
More than ever, benefits providers are using the argument that if a benefits scheme is structured using a salary-sacrifice arrangement - to take advantage of the savings available on employers' national insurance contributions (NICs) - a platform can be installed at nil or relatively little cost. Indeed, Aon Consulting claims to be seeing more interest in salary sacrifice now than 12 months ago. However, other advisers report a slowdown in interest as many employers err on the side of caution.
Where the economic downturn might have a more significant impact is on the technology providers themselves. This is not because of a lack of investment - Thomsons Online Benefits and Vebnet have each pledged to spend between £1m and £2m on technology this year, for example - but, rather, because it is a crowded sector.
For instance, large advisers such as Aon Consulting, JLT Online Benefits and Jelf Group, are competing with providers such as Benefex and Staffcare and accountancy firms such as Smith and Williamson. Increasingly, some specialist providers, such as Motivano, Vebnet and Thomsons Online Benefits, are also offering homegrown technology combined with consultancy services.
As illustrated by Standard Life's acquisition of Vebnet, some consolidation in the market has already taken place, and more is predicted. Before last year's takeover, Vebnet bought 4th Contact in 2006, while Orbit was bought by Axa as part of its SBJ Group acquisition a year ago and launched under its Bluefin brand in January this year. The latest move is Ceridian's partnership with Vebnet to deliver the latter's benefits technology with Ceridian's combined payroll and HR offering. This started to be rolled out to clients in January and will officially launch this month (see product news, page 12).
Complementary process†
Nick Thomson, director of small and medium-sized enterprises (SMEs) and alliances at Ceridian, says: "This is not two separate propositions stuck together. We have sat down, worked out the integration, processes and protocols to go into it, and built a complementary consultancy process."
So despite the gloom in the wider economy, an air of optimism lingers over the sector, perhaps because a significant opportunity is apparent. Gareth Ashley-Jones, head of flexible benefits at Aon Consulting, says: "It is still incredibly common for organisations not to have any technology around benefits."
For other providers, the optimism comes from what they consider is a compelling proposition. If technology continues to develop at its current rate, this could have significant ramifications for the way employers provide and manage benefits.
As Alistair Denton, managing director of Motivano, concludes: "I believe we are in a space that organisations have reason to invest in. The biggest thing employers are looking for is how to better engage staff in the workplace."
Avoiding legal pitfalls
Technology can vastly speed up benefits administration and make it easier to manage employees' benefits choices. But employers handling employee data must ensure that they comply with data protection legislation, says Peter Wainman, senior solicitor in the technology team at law firm Mills and Reeve.
"From a data protection point of view, it is not a massive issue when an employer has an in-house benefits system as there is a legitimate business interest in it handling the data," he says. "Where it starts getting more interesting, though, is when an employer uses a external provider, because there are questions of where are they located, what sort of data they are holding, what organisational measures the third party is taking to keep that data secure, and also under what terms that third party is engaged.
"Given that we are talking about sensitive personal data (in a technical sense), people should be notified if their data is transferred externally."
Case study: Parity
Introducing a flexible benefits scheme gave IT firm Parity the opportunity to revamp the technology behind its perks.
Before introducing flex, Parity relied on Excel spreadsheets to administer perks and HR managers had to manage staff data manually. Sarah Cook, HR director, says: "We can all go in and instantly see what somebody's benefits are rather than rifling through a file." The technology has also made it easier to communicate benefits for staff and enable them to access their package. "They can see what benefits they have, how much they cost, and model their pension," says Cook. "Before, they received an annual pensions statement and information when they joined the firm." The next step is likely to involve linking the benefits platform, provided by Thomsons Online Benefits, to Parity's payroll system to automate some of the remaining manual processes. This is in the pipeline, but is on hold until the company has finished installing a new finance and HR system.
