The four external pressures impacting all UK employers
There’s no doubt about it – it’s a challenging time for employers. The continuing pressures of the socio-economic landscape means there’s an ongoing struggle between how an employer would like to implement their human capital strategy and what they are actually able to do. We believe these challenges can be broken down into four key areas.
1) Cost pressures
Across all major health and risk insurance lines, cost pressures are mounting. Based on pricing analytics from Aon’s Broking Centre, our data suggests that medical inflation continues to rise at a rate of around 8% per annum. Income Protection, feeling the strain of continued low interest rates, on average, saw proposed renewal increases of 13% in 2016 and even the relatively competitive life assurance market saw average increases approaching 10%. This is even before we start to consider the wider cost pressures recognised by employers in our world, such as absence and lost productivity. The continued strain placed on the overall benefits budget by increased auto-enrolment contributions should also not be underestimated.
2) Carrying the welfare burden
This leads to another key challenge: the continued pressure being placed on the employer by the state to carry the health and welfare burden. Auto-enrolment is perhaps the best example of this, but highly significant too are the continuing pressures on the NHS budgets, changes in state incapacity benefits provision, the additional tax charges resulting from recent salary sacrifice legislation, the erosion of the bereavement benefit and finally, the impact of the move from sick note to fit note.
So with the current government unwilling or unable to carry the full burden, it falls on employers to decide how much of this they are able to pick up. The recent election results and continued uncertainty over the Brexit process will only throw more doubt over future direction.
3) Health and wellbeing
There are wider social issues that also need to be taken into account here. Health and wellbeing has been pushed to the very forefront of the HR and corporate agenda. This has shifted from focusing on the far end of the wellbeing spectrum and on those employees who are already in ill-health or off work, to an increased understanding of how targeting the underlying behaviours that cause ill-health can have a far greater impact on good workplace health.
4) Demographics and the ageing workforce
To take this conversation one step further, there is a further appreciation that for many employers, an increasingly diverse workforce will mean that a one-size-fits all approach will not drive optimal results. A thorough understanding of the health and engagement needs of all demographics should therefore be considered.
One of the most obvious demographic trends to understand will be an ageing workforce. The removal of the default retirement age and erosion of valuable defined benefit (DB) pension benefits is already compounding an inexorable shift of most employees to the older age brackets. This is presenting many different reward and engagement challenges but will also mean an increased focus on managing the health of what is statistically the highest risk groups for most risk and health insurances.
For the modern employer, the risks are abundant, not least market pressures to maintain current spend whilst meeting the growing need for finding additional budget. What’s more, we are in a period of ongoing political uncertainty and whilst change may bring positive action in some areas, it will almost certainly come at the expense of pressures elsewhere. Underlying health behaviours going unchecked as well as an ageing workforce will magnify issues.
Employers are therefore now faced with a series of ticking time bombs that, in the most extreme scenarios, could impact the very heart of a firm’s performance whilst increasing costs, affect productivity and the ability to attract and retain staff.
Recent data from the Aon 2017 UK Health Survey suggests that employers are aware of these pressing issues and are already looking to address them. Indeed, 97% of respondents said they saw a direct correlation between employee health and performance, nearly 80% said that an ageing population was an issue for them either already or in the near future and 96% either agreed or strongly agreed that they were responsible for influencing employee health and changing behaviours.
Fortunately, the group risk and healthcare markets are increasingly well placed to support employers confronting these challenges. For instance, employers can benefit from an ever-expanding range of added value services and they can access specific support on key health risks affecting their workforce such as mental health or cancer. There is also a much deeper understanding of how financial wellbeing can have a massive impact on employee performance and directly impact physical and emotional wellbeing.
For most employers then, it’s absolutely the time to take stock of historic structure and strategy and look to align spend in a modern and impactful way, powered by an understanding of current market trends, product innovation and shaped by informed, data driven decision making.
Mark Witte is principal at Aon Employee Benefits.
This article was provided by Aon Employee Benefits.
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