Reward flexibility: how traditional benefits are being disrupted
In the past, the employee benefit offering has been driven by paternalism. Employers felt that they needed to make sure that employees had enough money to retire on, or if something happened in the workplace, insurance cover was in place to make sure that the employee and/or their family were looked after.
So, inevitably the mainstay of benefits was, and mostly continues to be, pension, permanent health insurance and death in service cover. New products that fed into this sense of paternalism were quickly adopted; private medical insurance, critical illness cover etc all of which fall under the banner of ‘as your employer, we’re looking after you and your family’.
But things are changing. There’s now a sense that the employer is an ‘enabler’ rather than just a ‘provider’.
The introduction of flexible benefits no doubt kickstarted this change. In the beginning, it offered limited choice around the core benefits; swapping life cover for more pension contributions for example. But as the concept has evolved, employers have realised that there should be choice when it comes to the actual benefit mix. So one employee might want critical illness cover, whereas another employee might not, and would prefer instead to spend the money on a couple of days extra leave a year.
The point is that the employee is given control to decide what is best for them and can choose benefits that apply to their individual circumstances. And the wider the benefit offering, the better chance each employee has of meeting their individual needs.
And guess what? The more benefits an employee can use to meet their individual needs, the more engaged they are with the benefits scheme. They have a benefits package that’s valuable to them.
Enabler vs provider
Our ‘Realigning the workplace savings offering to meet the needs of millennials’ (2019) research showed that less than 10% of millennials are concerned about saving for retirement. What worries them is how they can save consistently, manage debt and save for their first home. With the best will in the world, a great pension scheme is not going to be as engaging for millennials as a savings scheme that can help them save for a house deposit.
For those employers who have moved to an ‘enabler’ position, the solution is simple. Introduce a Lifetime ISA and allow employees to redirect some of their pension contributions (over and above the auto enrolment minimums) into this vehicle.
You now have an employee who is saving for their retirement but also being helped to save for their more immediate needs i.e. their first home purchase. With employer contributions (that otherwise would have gone into the pensions scheme) and a 25% government bonus, a workplace Lifetime ISA is massively helping a millennial to get on the housing ladder. And you’ll see an improvement in engagement rates.
A paternalistic employer might argue that this type of approach is taking focus away from the ultimate goal of retirement, whereas an ‘enabler’ employer would say that providing solutions to meet all the financial needs of all employees is more important.
Take the guess work out of benefits
Traditional benefits aren’t going away, they’re an important part of the benefit mix. But what needs to be disrupted is their assumed prominence. Our lives are a journey and your employees are at different stages of this journey. What is of paramount importance to one employee is going to be of less significance to another. Don’t try to guess, give employees the choice.
This article is provided by Smarterly.
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