The main political party conferences are over and we’re starting to get a clearer idea of how long it will take for the economy to make a full recovery from the recession. While there are political differences, both main parties agree that national debt needs to be reduced through spending cuts, increased taxation or a mix of both. Alan Millward discusses this impact on the industry…
The impact of the recession is arguably most notably reflected in the proposals to freeze civil servants’ pay and curb bankers’ bonuses. Closer to home we have seen changes to pension tax relief for high earners, proposals to increase the state pension age and changes to the introduction of Personal Accounts.
The anecdotal feedback given by some our clients suggests that most have already taken steps to control costs within their business. Table 1 below is a snapshot of some steps being taken.
The financial services industry, of course, is not immune from the impact of the current recession. In some ways the impact is even greater as a large proportion of the income generated comes from assets under management, which are still suffering a 20-30% fall in market value from previous highs. This loss of income will have some impact on operating budgets, and many financial services companies are already reviewing development spends, payroll costs, advertising budgets and employee benefit spend.
For an employer making a significant employee benefit spend, careful consideration needs to be given to provider selection. Extra weight should be given to questions around the provider’s financial position including:
- How do the independent ratings agencies view their financial strength?
- Do they have the capital available to continue writing business, even if their break even point is in many years to come?
- Have they made a substantial investment in their propositions in recent years?
- Have they got a confirmed and ringfenced budget for future proposition developments?
- Is their administration heavily dependent on large numbers of staff or have they invested in straight through processing and online self-service?
Without rapid economic improvement, there may be some providers that are unable to invest in their business and keep pace with market demands. If reductions in employee numbers are required and service relies heavily on large numbers of staff, administration standards could also decline.
With money being as precious as it currently is, the priority is to focus our attention on ensuring that any benefit spend achieves a maximum bang for our buck’. High levels of member engagement will ensure returns on investment are maximised and will also assist employees with decision making regarding their own finances. Regular commentary on investment markets, the economy and provider strength will give employees reassurance that their company benefits (and any personal contribution to them) are safe.
Individual employees will face a variety of challenges from managing debt, to saving for a mortgage deposit, to making decisions about their retirement options. Expert advice and guidance should be available during these difficult times. Debt counselling may be seen as a real benefit
for some, for others personal advice about their retirement options could be a real help.
There appear to be many challenges ahead and no one really knows how long it will be until the economy is more stable. However,as an industry we have the ability to help individuals manage their finances and improve their quality of life during all economic cycles.
Head of Workplace Distribution at AXA.