Risk & Economy » Regulation » Auto-enrolment: A watershed opportunity

FINANCE DIRECTORS at large and medium-sized companies will have started to receive letters recently from The Pensions Regulator advising them of their new responsibilities as part of the introduction of auto-enrolment for workplace pensions.

From October 2012 the largest companies will have to start offering workplace pensions, if they do not already, and will be required to enrol all staff in their scheme automatically. Employees are able to opt out but cannot be encouraged to do so. The largest companies will receive their letters by the end of this year, and the process of workplace pension reform will continue until February 2016 when all companies, no matter what size they are, will have to offer pensions.

This is a massive shift in the pensions landscape, which is expected to lead to between five and nine million people starting, or increasing, contributions to pension schemes.

It should also be seen as a watershed opportunity for all companies, no matter what their size, to review and reshape their employee benefits packages for the 21st century. Whether they are multinationals, mid-corporates or SMEs, the greatest resource and competitive differentiator for all companies is likely to be their staff. Providing the right mix of benefits can help to increase loyalty and job satisfaction and achieve business objectives.

The changing employee benefit landscape

The way people manage their working lives and careers has changed for a variety of societal, regulatory and demographic reasons. The abolition of the Default Retirement Age – staff can now ask to work past 65 – is the most recent legislative change, but this was driven by other trends.

These include increased longevity, with 17% of the current UK population expected to see their 100th birthday, plus changing working patterns, and the general shift to defined contribution pensions instead of final salary schemes.

Government welfare and pension reforms are shifting the onus for protection back on to the individual, with companies, if they are willing, potentially having a role in helping employees adapt to the changes.

Reshaping employee benefits for the 21st century

There is, however, a disconnect between how employers and employees currently view employee benefits – MetLife’s International Employee Benefits Trends Study (www.metlife.co.uk) shows that, in the UK, 50% of employees are satisfied with their benefit packages while just under a quarter of employers believe that their staff are satisfied with the benefits that are provided. The research also found that 53% of employees are satisfied with their jobs, compared to just 41% of employers who believe their staff are happy in their work.

Uptake of employee benefits could be higher. Around 72% of employers in our study provide private medical insurance but only 28% of employees take it. Around 69% of companies offer life assurance benefits and again only 28% take this up. The study, which looked at the UK, Australia, India, Mexico and Brazil, found that in the UK paid holidays were the most valued benefit for employees ahead of more traditional financial benefits.

However employers are telling us that they believe they are too generous with paid holidays. One in four small and medium-sized employers in the UK surveyed believe they offer too many paid holidays to staff; 27% of companies employing more than 22.8 million people, and representing nearly 99% of UK firms, believe they are too generous while a quarter of those firms are considering cutting holiday allowances above the 28 days which employees are entitled to by law.

Perhaps not surprisingly, employees themselves tend to agree with them. Our study found that a third of staff would be willing to take a holiday cut in return for a pay rise. They have seen pay eroded by inflation so have a clear motivation – around six out of 10 workers say they have not had a pay rise in the past year.

There is demand from employees for help from their employers – our research found clear evidence that help with financial planning and education on financial issues would be valued. Employers who regard it as a strategic investment in the long-term success of their business to provide employee benefits, including help with financial planning, can benefit as a result. These employers can also take advantage of the added emphasis on pension provision resulting from the introduction of auto-enrolment to review their benefits packages.

Increasing loyalty and productivity with employee benefits

Undoubtedly benefits can contribute to loyalty, and when employees are satisfied with the benefits they are offered they tend to be satisfied with their jobs, and more likely to stay. Employers who feel their staff are highly satisfied with their benefits also tend to believe that they are being loyal to staff.

Carefully designed employee benefit packages can be a virtuous circle. Happier staff will contribute to increased productivity, and increased loyalty will reduce recruitment costs.

Companies need to do a better job of understanding the connection between staff loyalty and benefits, as demonstrated by the disconnect revealed in our research which shows that staff value benefits more than their employers think they do. And, to be blunt, providers such as MetLife need to work harder at helping companies with this process.

The key for employers is, of course, to deliver benefits that are valued and which in turn help them to control costs. The cover offered to employees and the cost to the employer have to be aligned to meet the needs of both.

That is the challenge for providers such as MetLife – to deliver innovation and flexibility and develop a best practice approach to the provision of employee benefits. We have to offer employers greater transparency and buying power and deliver products that help employers save money while also driving loyalty amongst their staff.

The reshaping of the UK economy and the focus on public sector cost control will mean the private sector will be the driver of economic revival over the coming years. The spotlight will turn on to small and medium-sized companies as the main job creators – companies will need support with developing their workforce and employee benefits can play a major role in achieving this.

Dominic Grinstead is managing director of MetLife UK

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