Rising trends: How employee benefits will evolve (download FREE report)

The benefits landscape is shifting due to employee demand, economic and tax changes. Already we can see the trends.

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If you want to sum up the two biggest challenges facing employee benefits provision you can pretty much do it in eight words: cash now, cash future; health now, health future.

This is because, while the employee benefits landscape is complex and nuanced, it is, very broadly, being coloured by two key trends at the moment.

First off: ‘cash now.’ There’s the impact of wage stagnation, or at least a perception of it. And a continually challenging, if improving, economic climate on the appetite for benefits, both in terms of take-up by employees and investment by employers.

Combined with this is ‘cash future’. There is the effect of the government’s reforms around pensions’ freedom from April 2015, financial guidance and pensions auto-enrolment which has been rolling out nationally since 2012. The effects here are the number of employees now being directly enrolled into pensions, the appetite of employers to use this changing landscape to think about employee benefits more widely, and the impact such changes are having on demand for workplace-based financial education, debt advice or retirement planning.

Future brings health concerns

Secondly, there is ‘health now’. There is a growing awareness of, and appetite for, health and wellbeing-based benefits with, arguably, risk-based benefits running alongside this trend. This trend is being complemented by ‘health future’, or the backdrop of rising concerns around lifestyle diseases such as obesity and diabetes and an ageing, more health-conscious, but also more health-worried, workforce.

As Peter Reilly, principal associate at the Institute for Employment Studies, argues: “One area I think is going to be very interesting is the extent to which employers will be providing financial advice to employees. This is something relatively new but its growth isn’t surprising given the growing demand for debt advice, counselling and guidance, and now with the new pensions’ freedoms.”

This area does indeed appear to be growing fast with the Chartered Institute of Personnel and Development (CIPD) arguing provision more than doubled between 2012 and 2013. Consultancy Secondsight has also highlighted how HR professionals are seeing increasing numbers of people asking for this sort of employer-funded benefit.

Auto-enrolment has, inevitably, rapidly accelerated pension provision over the past 18 months but there is also a debate about whether the auto-enrolment model of mandatory provision could be extended into other risk-based benefits, such as income protection.

Rising trend

The rise of wellbeing

The benefits of doing this, have been emphasised by the Association of British Insurers, among others, even if the chances of there being the political appetite for such a radical step currently appear somewhat slim.

“Over the last couple of years we have seen an increase in clients offering critical illness and additional greater pension flexibility, with pension plans being integrated into flexible benefits schemes,” adds Ed Smithson, head of flexible benefits at consultancy Buck Consultants at Xerox.

“Health cash plans are becoming a more widely offered benefit, both as an alternative core benefit to new joiners or as a complimentary piece to private medical insurance,” he says.

This feeds into a growing focus on wellbeingbased benefits. “Whereas you might have offered a cycle-to-work scheme a few years back primarily because of the environmental benefits, now the emphasis is more likely to be on its wellbeing or health benefits. Or it might be eyecare vouchers, or critical illness insurance. There is also, of course, an element of employers simply wanting to do more to reduce absence,” explains Reilly.

Salary sacrificed-based access to technology such as smartphones or tablets is another increasingly popular area, as is offering access to (again generally health-based) wearable technologies such as the Fitbit, argues the CIPD’s reward adviser Charles Cotton.

Will wages hold us back?

Ultimately, however, what is likely to be the biggest growth driver going forward, or conversely the biggest drag on the market, is simply how, or whether, the government and employers address concerns over wage stagnation.

Technically, of course, wage growth is finally ticking up, hitting a four-year high of 2.7% in April. We also have significant increases in the national minimum wage coming through from this October with the government strongly indicating there will be more to come over the next five years.

Nevertheless, there is still a sense we have long way to go to recover ground lost during the economic downturn, argues Reilly. He points to (as we highlight in the Infographic) the CIPD’s finding that barely a third of employees got a pay rise in the first half of last year, even if the figure is rising year-on-year.

“Base pay is going to be the issue. And if your pay is not increasing, you are less likely to want to cut it using salary sacrifice,” he says.

As the economy improves, we are seeing more activity around high-end status benefits. Perks such as company cars or offering first class rail or air travel, or getting your own parking space will be in the increase, argues Cotton. But this wider sense of a disparity around pay is something that could, in time, affect the appetite for employee benefits, especially salary sacrificebased benefits, he agrees.

“Discounted deals can help stretch people’s salaries. But there is also only so far you can go without needing to tackle the underlying pay element.

“Moreover, the government has said it is not going to increase VAT, national insurance or income tax this Parliament. But it is still going to need to get money from somewhere, so might it be that we start to see it looking at tax-preferential benefits? Could salary sacrifice come under scrutiny, or pension allowances?” he questions.

Nic Paton is an award-winning freelance journalist, he is a regular contributor to Employee Benefits, Reward, Health Insurance and Edge magazines

This article is taken from Personal Group’s Special Report entitled: The Future of Employee Benefits: Engaging Staff in a Digital Age.

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This article was supplied by Personal Group