Fast-moving skilled employees are a perpetual headache for human resources teams. And while flexible employee benefits can help recruit and retain top talent, high consultancy costs can keep smaller enterprises out of the running – which is where a budget approach is invaluable.
Indeed, as the benefit requirements of a small company are no different from those of a vast enterprise, what could be better for these businesses than an off-the-peg plan?
Nothing, according to Scottish Equitable, which has developed its Employee Protection Menu. Designed to sit alongside a stakeholder or group pension scheme, this product allows flexibility but costs far less than a full-scale flexible scheme.
With a target market from 50 to 500 employees it should prove itself to be increasingly useful. The six different pre-set menus are based around standard protection insurances: life insurance, death-in-service pension, income protection (IP), critical illness and spouse/partner life assurance.
Additionally, each menu comes with a guarantee for two years: a fixed percentage of payroll price for the employer, regardless of the individual choices made by the employees.
All the employer has to do is select the menu, which can range from basic to top of the range. Scottish Equitable Employee Benefits marketing actuary Rod McCarthy explains: “What the employer might do is say, ‘I already have a fairly good benefit structure in place which offers every employee four times salary death-in-service lump sum and 75 per cent less state IP policy. So I’ll pick a menu which has that as one of the options and it will be a similar budget to what I’m already paying, but with flexibility.’”
It is also possible for employers to introduce an executive option for specific individuals, again for a fixed percentage of the executive salary roll.
As well as giving flexibility, this plan has the power to bring the concept of employee benefit schemes into the 21st century.
The current scenario for too many companies is far from dynamic.
It goes something like this – somewhere, in some staff handbook, in the personnel department, is an explanation of employee benefits. Every supervisor is supposed to have a copy, but you, the employee, try asking for it and pages of this loose-leaf ring binder are likely to be missing, badly photocopied or not updated.
But with inter- and intranet such problems are forgotten.
“The amount of internet access is very widespread,” says McCarthy. “The government had targets for having a certain number of small and medium sized enterprises (SMEs) on line by the end of the year 2000 and I know it exceeded that.” However, using such systems is not without its own resource problems. Independently creating and updating such an in-house intranet is usually very low on the task list of small information technology departments.
However, other aspects of the scheme are more traditional.
The underwriting for the flexible menu works in much the same way as any single group scheme, with free cover limits. “What we’ve done is just set a salary which we will underwrite,” explains McCarthy.
“For example, we might say for IP that we will underwrite everyone with a salary over £100,000. That might mean we would underwrite more or less than we would do normally, so for people who pick the maximum benefit we might underwrite a little bit less, but you have to take a view to try and simplify it. You can’t afford to clog up the machine with administration.”
Scottish Equitable feels it has enough protections in place to ensure the premium levels are competitive but, overall, this insurer has taken a pragmatic view on the underwriting front in order to make the product work.
It is not alone in working to develop the market. There are two major reasons for a recent industry shift towards the whole arena of employee benefits – and a number of new companies are showing their interest in this sector.
For a start, a wealth of pension expertise has run into the brick wall of the government’s new low-margin stakeholder pensions, creating a superfluity of corporate advisers looking for items to add to their advice chest.
But, additionally, at the same time as stakeholder pensions and the shift towards money purchase pension schemes, former employee benefit add-ons have been shattered.
Life cover is no longer an integral ingredient of the company pension pack and ill-health retirement options can be non-existent for anyone who is incapacitated while young because the money simply is not in the money purchase pot.
Hence, many of the protections that were afforded by the old-fashioned final salary scheme have evaporated.
But while the need for benefits is constant, it is the flexible element which is being demanded by a new lifestyle culture. “A lot of human resources managers are talking about flexibility,” says McCarthy. “Part of the drive that we’ve seen in the market, with a lot of mergers and acquisitions, is a change in company culture and a desire for some kind of flexibility for employees.”
Scottish Equitable’s offering is limited by its product base, but there are few alternatives for a budget-sized client. Running a fully-fledged flexible benefits scheme, with ten or 12 product options from as many providers, is not a viable option for an employee base of less than 1,000 as it really needs 3,000 to 4,000 to make it work well. It can also take up to a year to draw such a scheme together and implement it. “If you get into the area of putting in a fully flexible scheme,” warns McCarthy, “you are looking at restructuring your entire payroll. It really is as fundamental as that.”
So is it possible for an IFA to put together a made-to-measure flexible scheme on a small scale?
“There are ways of getting lower cover through group plans,” says Nicholas Bennett, the head of compensation and human resources practice for Buck consultants. “Providers like Denplan have three, or even four levels, within the same plan.
“I’m currently putting together a flexible scheme for an investment bank where we are going to have three levels of dental plan and they can choose which bit they want.”
But Paul Roberts, a consultant for Working Well, agrees the difficult task of putting together a truly flexible package is a response from IFAs rather than a pro-active sale.
“Quite honestly, no-one is pushing it because they don’t make enough money at it,” says Roberts. “There is no more money in the bag. It all just gets spread around and you add a whole lot of administration aggravation on top.”
This does reinforce the need for more off-the-peg schemes with in-built choices from a single insurer and an inherently better spread of risk.
The demand for flexibility is certainly there. Flexible benefits schemes in general have doubled in the last four years, according to a report issued by the Industrial Society published in early November 2000.
A full flexible benefits scheme can be a very valuable asset for larger organisations, but for SMEs wanting to play in the same playground, a budget plan like this one can be extremely useful.
All in all, an off-the-peg flexible plan is a very of-the-moment idea and it is quite a surprise that no other insurer has yet followed suit.