Wake up to the new flex era

Firms are being drawn to flexible benefits yet IFAs seem to be in denial about the opportunities that this new avenue of business will bring. Rachel Gordon warns that advisers need to get their business into gear or risk losing out

It’s proven that more companies are interested in providing flexible benefits for their staff, as research from the Chartered Institute of Personnel & Development (CIPD) shows. But are IFAs marching in the same direction or are they out of step?

Success as a corporate adviser depends on listening to clients and coming up with solutions. But it seems far too many IFAs are simply talking products. Many employers will take it for granted that their adviser can source them competitive core financial services. Instead, they may want more on issues such as green commuting plans and how employees can buy a new bike through payroll – and how using these for work is a tax-deductible expense. Or, as the number of NHS dentists continues to shrink, they may be interested in dental cover. And perhaps someone may have heard of another employer who provides wine club membership. Times are changing and IFAs need to look to flex.

According to the CIPD’s 2007 annual survey on reward management, flexible benefits remain most prevalent in larger companies with young workforces. But it says this is changing since of all the forms of flexible reward, flexible benefits is the one that is expected to see greatest growth in 2007.

Certainly for smaller firms, this is not going to happen overnight and there is no getting away from the fact that plenty of companies will say the cost of implementation is too high.

On the other hand, technology is now making flex – in more simplified forms – more accessible. Staffcare is one solution and its chief executive Phil Hollingdale says targeting SMEs with a flex proposition presents a massive opportunity for IFAs.

He says if they don’t, IFAs will leave themselves open to losing corporate clients over the next few years. “Very few IFAs are able to service the demand which is going to materialise. There are over 33,000 SMEs in the UK who typically source and manage their employee benefits via an IFA and the current perception is that they won’t have the budget to implement flex but software allows a more commodit- ised approach.”

Hollingdale says a majority of IFAs “are in denial about flex” and he sees a number of reasons for this. “They are not used to providing a more consultative sales approach and are not comfortable about charging – even though this is an area which naturally lends itself to fees.”

And he adds that some are also worried that they will lose out on commission if employers trade traditional pensions for so-called lifestyle bene- fits. “It’s a naive view. In some cases, detailed pensions guidance is now passé. If IFAs don’t take flex to their clients, then someone else will.”

That could indeed mean a more switched-on IFA winning the business. The Oval Group has recently added flex to its financial services offering and has created an administrative centre in Nottingham to service corporate clients – which starts for companies with 50 employees.

Reward director Debby Hannaford comments: “We recently conducted research among our cli- ents which showed 76 per cent of them wanted to introduce some form of flex. The demand is definitely there.”

She agrees that the service must go far beyond selling products. “In the case of introducing flex, we would look to survey employees to find out what they want – you need to secure buy-in and communication is vital so we would set up a strategy for this. There is no point just having a website with information if people don’t know about it and paper is still read more. The adviser has to work very closely with the HR team.”

She adds that benefits should be matched closely to the company’s profile. “You need to recommend benefits that fit the age of employees and try and include a mix of those which are useful, perhaps such as cash plans, to those which make people feel good and get them interested in the benefits programme – reduced price theatre tickets could be an example.”

Hewitt Associates is one of the biggest employee benefit consultants but it is not just there to provide consultancy for the largest companies. Head of reward Martha How says it offers services to a growing number of businesses that have headcounts below 1,000. She agrees flex is taking off across the market. “There are several reasons for this. For one, suppliers are less hung about providing good deals for smaller companies whether it is a financial product of gym membership. There is also a bigger choice of affinity providers.” She adds that a consultant like Hewitt can also leverage its buying power to secure these.

She points out that flex is set to take off as employers realise they have to do more to attract and ret- ain staff. “Many companies are finding there is a shortage of people. They are having to look at offering more flexible terms and making their benefits more attractive.”

Last year, research from Hewitt showed that more than nine out of 10 companies that had introduced flexible benefits said it had helped save money by avoiding giving staff benefits they don’t want or need. And, although flex does entail a cost – the CIPD puts it as around 15 per cent of the pay bill – How agrees the costs are dropping.

Thomson Online Benefits meanwhile is shaking up the market by saying that employers don’t need the traditional IFA or employee benefit consultant to come up with the goods. Chris Bruce, a director of the firm, says the big employee benefit consultants are now running scared – and that IFAs have been too slow to grasp the flex mantle.

“The problem with the big consultancies is that their IT is now dated. We are smarter and slicker in what we can do and they are too often hung on providing expensive actuarial services – which a company without a final salary scheme may not want. Instead, employees may be far more interested in carbon offsetting schemes. We can be more relevant and have the necessary tax, legal, health and wellbeing and financial consultants based in-house.”

He says this means Thomson can bypass the consultants and IFAs and work direct with employers – including small ones. Most recently, the company has linked up with comparison site Money-Expert.com which will enable employers using Thomson’s service to help their employees find a range of financial products to meet their needs. Product areas covered include credit cards, personal loans, savings accounts and mortgages.

Thomson has grown from a handful of staff to over 100 and Bruce comments: “I would not rule out working with some IFAs but it’s not really what we are about. I would also say to any IFA thinking of moving into this area without experience to be careful about employment law. It can be ludicrously complex.”

How says employers should select their providers with care. “There are various technology providers out there which offer a quality of service which is variable. It could be dangerous and foolish not to make sure that the service matches up to promises. When you are dealing with people’s work contracts – which vary enormously – you cannot impose a standardised solution.”

Currently, it seems there is a lot to play for. Hollingdale is looking to bring IFAs up to speed by offering training though his firm’s Flex Academy. This offers courses in the topic and training in the technology.

He says 70 IFAs attended the latest in April, which covered how to design a flex scheme, tax implications for employers, building the business case, implementation stages and details of specialist product providers who have designed flex products for small and large businesses.

Hollingdale argues this will lead to “a new breed of IFAs who are re-inventing themselves as benefit consultants. And they are doing a good job at taking business from firms who have not consulted with their clients about flex.” Staffcare allows white-labelling and so means IFAs can provide clients with their own branded proposition.

The major providers are also looking to support IFAs wanting to offer flex. Unum, for example, has increased the flexibility within its product range.

New product features include increased maximum benefits on group life cover and a built-in guarantee period for employee rates.

Wojciech Dochan, head of commercial marketing, says: “IFAs need to deliver and switch on to employer demand. That means being aware that companies may be interested in ways of reducing stress, in giving their staff more time off, for example, if they have personal or family issues going on or that they may be employing more older people and that they have health conditions.”

Meanwhile, Aegon Benefit Solutions has a web-based service for IFAs which supports flexible benefits, total reward statements, holiday and absence, pension aggregation and forecasting, self-service human resources, discounted voluntary benefits and full HR admin of employee benefit packages.

As the table from the CIPD shows (opposite page), the number of companies planning to offer flex this year is not overwhelming, particularly among smaller businesses. But the trend is upwards and any IFA wanting to tap into growing demand needs to get their business – and thinking – into gear or risk losing out.

Salary sacrifice and flex – a bold future or a bleak one?

“Hopefully the Government has learned from its mistakes over the last 10 years that have damaged existing pension schemes and will leave salary sacrifice alone”
Jim Aitken, SBJ Benefit Consultants

The extent to which salary sacrifice is threatened by the proposed introduction of the National Pension Saving Scheme in 2012 is a matter of debate. But if you do subscribe to the view that one of the most attractive tax perks enjoyed by employers could be facing the chop, then your clients will want to hear all about this ‘use it before you lose it’ break.

Experts have conflicting views about the seriousness of the threat hanging over salary sacrifice, which by association raises concerns over the future of the flex schemes that rely so heavily on the pension component of their arrangements. Richard Harwood, client services director at Grant Thornton, says: “The Revenue would be daft to offer salary sacrifice of pensions when they are compulsory. For one thing, if everyone who goes into personal accounts sacrifices 5 per cent of salary, then the Revenue is going to face a huge shortfall in National Insurance contributions.”

The logic of the argument goes like this. Personal accounts require a 5 per cent employee contribution, not an 8 per cent combined contribution from employer and employee. If salary sacrifice is allowed for the five to 10m new pension savers joining the state scheme in 2012, the Revenue would face a short-term income hit so huge it would not let it happen.

“Rumours about the end of salary sacrifice before 2012 are rattling around the market and I find it hard to see the Treasury allowing so much tax to carry on being lost, particularly when everyone is enrolled into personal accounts,” says Philip Smith, principal at Buck Consultants. “A lot of flex schemes are sold on the basis of savings made through salary sacrifice so its abolition would pose problems for flex.”

Others are less certain that salary sacrifice faces the chop and point out that there is still a long way to go before the break is removed. Jim Aitken, marketing director of SBJ Benefit Consultants, says: “Some commentators have recently questioned whether this valuable facility will continue to be allowed when personal accounts are introduced in 2012 but the detailed rules for contributions and exemption are not final. Indeed, there is even a question over whether personal accounts will fly at all due to the serious concerns which have been expressed. Whatever happens, they are still at least five years away and substantial savings in NICs can be made in that time.

“Hopefully, the Government has learned from its mistakes over the last 10 years that have damaged existing pension schemes and will leave salary sacrifice alone,” adds Aitken.