Flexible friend

Flexible benefits programmes will be one way for medium-sized companies to address the extra cost pressures caused by auto-enrolment says David Williams, director of group protection at Friends Life

David Williams, Friends Life
David Williams, Friends Life

The impact of auto-enrolment on employers has been a topic of unrelenting debate since its launch in October last year.

Initial staging data suggests that opt out rates are not as high as expected and once contribution rates start to increase over time, the cost pressures for employers will start to mount.

Whether employers choose to absorb the cost of auto-enrolment or prefer to review their employee benefit package one thing is clear, we are likely to see increased interest in flexible benefits.

It remains to be seen whether auto-enrolment’s impact will be felt immediately or whether it will become apparent once employers have come to terms with implementation and volume of staff take up.

In turn it is also too early to assess the true impact on group protection, but the super large companies staging last year and in the first part of 2013 may be more willing to absorb the cost of auto-enrolment leading to a neutral to positive impact on group protection spend.

Those companies staging in the latter part of this year and beyond may have other ideas, and may consider a flexible benefits package as a more cost effective way of providing protection and other benefits to staff.
According to the Swiss Re Group Watch survey 2012, the level of group protection benefits being covered under a flexible benefit arrangement continues to rise.

Group critical illness continues to lead the way with approximately half of the market written on a flexible benefit basis while group income protection and group life cover is around 10 and 7 per cent respectively.
This makes the total market for flexible benefits around 10 per cent of the whole group protection market with a growth in flexible benefit business of 15 per cent from 2010 to 2011.

The overall cost pressures that all employers find themselves under is another fundamental driver for the movement to flex.

Return on investment for company expenditure is still paramount, and any spend on employee benefits needs to clearly outline how it clears the cost-benefit hurdle.

This has led to some group protection schemes reducing the level of cover offered with reductions in salary multiples for life cover and the increase in limited payment term schemes for income protection.

For some employers, flexible benefits have allowed them to continue offering levels of benefit that they may have had to reduce or remove previously.

This has given staff the opportunity to purchase valuable protection benefits to protect them and their dependants when they are at their most vulnerable through illness or bereavement.

Following the Retail Distribution Review, the cost of personal advice is likely to rise while access to advice may become more difficult if distribution consolidates.

A flexible benefit system provides access to tools and services to help users bridge the advice gap. Although not a replacement for expert advice, online tools do provide guidance and support for those planning and reviewing their financial circumstances.

One such area of support is total reward statements which offer increased staff awareness of the benefits they receive or are entitled to and helps staff make more informed choices with regards to self provision.

It is also important not to forget the traditional drivers of flexible benefits that are still very relevant today.

The opportunity to provide a wide ranging mix of employee benefits with potential tax savings provides a compelling and competitive employee benefits package.

Even in a difficult job market the ability to attract and retain talented staff is still a key requirement for employers wanting to be perceived as an employer of choice.

Whatever the future holds for flexible benefits, one thing is for certain and that is employers should take expert advice when considering setting up a flexible benefit arrangement.

An adviser will be able to ensure that the employer provides a proposition that meets their staff needs and budget requirements, is supported by the right technology, and most importantly is successfully communicated and implemented.