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22 Nov 2022
by Steve Watson

Benefits: protecting employees vs letting them decide for themselves

Are employers becoming too paternalistic? How to get the balance right

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When it comes to employee benefits, there has always been a sense of paternalism. Whether providing big spend benefits like life cover or pensions, there’s a sense that we need to protect employees from themselves. We need to make the ‘big’ decisions for them.

Even with the provision of flexible benefits, there are generally safeguards in place, so, for instance, employees might be able to flex their life cover but can’t flex down below a certain level. In other words, they have choice but not entirely.

Some of this boils down to restrictions set by providers, for example underwriting parameters or regulatory requirements, but some of it is driven by a sense of moral duty –  as your employer “we know best”.

But is this wrong? Not in principle, but there is a fine line and that line is crossed when the way benefits are introduced, positioned or communicated feels judgemental and like choice is taken away. This approach is disempowering, whereas the ideal approach is about enabling.

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Employees know best

We must trust that employees know their needs better than anyone else and choice is really engaging, which is one of the drivers of flexible benefits. What’s better, a menu of pre-determined benefits, some of which I may or may not need, or a menu of benefits that I can choose from and tailor my own package?  In anyone’s book it has to be the latter. It means that I have to think about my needs versus what’s on offer and, in making my choices, I am made aware of how much the employer is paying.

Engagement inevitably leads to greater appreciation and greater appreciation inevitably leads to greater engagement – it’s a virtuous circle.

There’s no better example of this than workplace savings, especially when there is more than the auto enrolment minimum contribution levels on offer. Why can’t an employee decide that they want to use those extra contributions in another way?

Saving is still an option

However, with the complexities of pension tax relief and taxation, many employees can’t contribute further to pensions or, as is the case for higher earners, they are seriously restricted. Does this mean they can’t continue to save through the workplace or worse still, lose out on employer contributions?

For most employers, the answer to both questions is, thankfully, no. Rather, contributions are redirected into an alternative workplace savings arrangement, so employees are still saving and benefiting from employer contributions.

It might be, due to taxation differences, that the value they end up with into workplace savings is less than in a pension, but from an employer perspective they’re giving an option that could suit employees’ financial needs the best. But employees need to ultimately make that decision.

Hybrid arrangements

Once a company has gone down this route, the natural progression is to recognise that other employees might have other financial needs that are best suited through a hybrid arrangement – pensions and workplace savings working in tandem.

Again, as with flexible benefits as a whole, this requires a decision that, in turn, requires engagement and engagement leads to greater appreciation. We’re back to the virtuous circle again.

A paternalistic employer might argue that this 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.

But what is of paramount importance to one employee is going to be of less significance to another. Don’t try to guess it: give employees the choice.

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