Benefits and allowances: trends and developments

Perhaps surprisingly, benefits provision remains a vibrant sector, even in a time of recession.

While pay has taken quite a bashing since the recession began, the economic downturn’s impact on benefits provision hasn’t been as negative as anticipated. According to IRS’s Benefits and Allowances 2010 survey, almost twice as many employers introduced a new benefit as withdrew one.

Childcare vouchers remain the most popular perk, offered by three quarters (75.4%) of employers, up slightly from 75% in the 2009 survey. And, despite the sudden rash of ‘green’ benefits such as cycle to work schemes, the car is still king. Free car parking is the second most widely offered benefit among respondents provided by 73.4% of employers. More than half (54.6%) offer a car allowance and 44.7% provide at least some employees with a company car.

Expert responses to the findings:

Tobin Murphy-Coles, director of flexible benefits and marketing, Lorica:

“What we are seeing is equivalent to tectonic plate movement in employee benefit geology, with new land mass formed and the old landscape sinking under the sea.

“The driver for this is a shift in our working patterns, social dynamics, remuneration, work/life balance, understanding of benefits, availability of technology and, ultimately, professional aspirations.

“We are helping many clients replace burdensome legacy benefits with newer, more engaging benefits. A great example would be removing legacy group income protection that pays an employee until retirement, with a limited term alternative, then using the savings to re-energise the pension scheme or provide a hospital cash plan to all staff. For larger employers, the impending possibility of pension compulsion is putting the brakes on any immediate change to benefit provision. Many businesses are still unclear on whether they are for or against the National Employment Saving Trust, how many of their staff will be in the first tranche of compelled individuals or how the new coalition may change all of this. The outcome is often to maintain status-quo until we know more.”

Mark Pearce, group head of HR, SEGRO:

“I am surprised that childcare vouchers have been rated the most popular benefit, I would have thought the more traditional benefits such as pensions and private health cover would be more popular.

“At SEGRO almost all of our employees join our pension scheme and private health insurance, whereas childcare vouchers are taken up by less than a tenth of staff.

During the past 12 months we have made some changes to our benefits provision, but the core benefits such as pension, holidays, share schemes and car scheme have been unaffected.

“Following staff feedback, we extended our private health insurance to include unmarried partners. This has been positively received by those now included in the scheme and has had a negligible impact on the cost of our insurance premium.

“As we start to see more movement in the job market, maintaining a competitive benefits package will be an important element in retaining talent.”

But at the same time, there has been a marked increase in the number of employers offering season ticket loans, suggesting efforts to encourage staff to use public transport. The survey showed 35.4% of employers offering loans, up from 12.5% a year ago.

The most popular health-related benefit among respondents is private medical insurance (PMI), offered to at least some employees by 66.4% of employers in 2010. This fell slightly over the past year, from 68.4% in 2009 – a smaller drop than expected, given the expense involved.

Employee assistance programmes and permanent health insurance remain popular, offered by 62.1% and 43.7% of employers respectively. The emphasis seems to be on preventative measures, with more than twice as many employers offering health screening – up from 18.9% in 2009 to 39.5% in 2010.

Final salary schemes remain the most popular pension provision, offered by 37% of employers, although 53% of these schemes are now closed to new members. More than a third (36.6%) of employers offer a group personal pension plan, while 29.3% provide a group stakeholder pension scheme and 18.7% a money-purchase pension.

Flexible benefits are offered by 15.1% of the employers surveyed, up from 12.2% last year. Just 1.8% of organisations said they were in the process of introducing a flex scheme, while 13.8% were considering doing so in the future.

The survey found flexible benefits more common among private sector services firms (15.7%) and manufacturing companies (16.2%) than in the public sector (9.6%). Only a handful (4.5%) of organisations with an annual turnover of less than £25m offer flexible benefits, compared with 42.3% of organisations with a turnover of more than £1.25bn.

The less complex option, voluntary benefits schemes, have fallen in popularity, offered by 28.1% of employers in 2009 and 20.8% in 2010. As these benefits involve little or no expense to employers, this is an unexpected trend. But looking back to the 2008 survey, which showed 21.8% of employers offering voluntary benefits, suggests last year’s figure may have been a blip.

Voluntary benefits are offered by 30.8% of employers, considerably higher than in the private services sector (18.2%). They are more likely to be offered by large employers, although a further 7.4% of employers are considering introducing a voluntary benefits scheme.

Salary sacrifice schemes, allowing employees to agree to forfeit cash pay in return for a non-cash benefit, remain popular, offered by more than half of employers (50.8%). A very small number (1.8%) of employers surveyed are in the process of introducing salary-sacrifice benefits, with 5.9% considering doing so.

What has changed since last year?

Contrary to expectations, the survey shows no clear-cut pattern of cuts to benefits provision. Respondents were asked whether or not they had withdrawn or introduced any benefit over the past 12 months or reduced or increased any in value. The survey found:

  • Just over one in 10 respondents (10.2%) had withdrawn one or more benefits or allowances over the past 12 months. The benefit most likely to be withdrawn was the final-salary pension scheme
  • Double that number (20.3%) had introduced a new benefit. The introduction of cycle to work schemes was by far the most popular newly introduced benefit
  • Fewer than one in 10 (8.4%) had reduced the value of one or more benefits, while a smaller proportion (6.8%) had increased one or more benefits in value
  • Most respondents (63.7%) had made no changes to their benefits package over the past 12 months.

Again, employees of larger organisations are more likely to benefit. Two-thirds (66.9%) of organisations with 1,000 or more employees now offer benefits through salary sacrifice compared with 40.4% of those with fewer than 250 employees.

According to report author, Sarah Welfare, it is surprising this figure is not higher in view of the significant tax and national insurance savings to be made.

So what next for benefits? Respondents were asked for their plans for the coming 12 months. Just 5.6% of them plan to withdraw a specific benefit or allowance over the coming year.

A similar proportion of employers planned to increase (7.9%) or reduce (7.2%) the value of one or more benefits over the next 12 months – the benefits most likely to be reduced in value were company cars, PMI and final-salary pension schemes.

PMI is also one of the benefits employers are most likely to invest in, along with car allowances, company cars, personal pension schemes and stakeholder pension schemes. More than a quarter (26.6%) of those surveyed plan to introduce a new benefit over the coming year.

Popular options were cycle to work schemes, childcare vouchers, new flexible or voluntary benefits, buying and selling annual leave, group personal pension plans and health-related benefits such as healthcare cash plans or health screening.

Assumptions that benefits and allowances would be badly hit by the recession seem to have been wide of the mark. Clever employers have used creativity and employee feedback to work around financial restrictions – with considerable success.

About the survey

The survey covered the benefits and allowances provision at 443 UK organisations, employing in total almost 1.4m people. The survey findings are published exclusively on XpertHR. Around two-thirds (64.6%) of respondents were from private sector services, 23.7% from manufacturing and production firms and the remaining 11.7% from public sector organisations.

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