Simplifying flex: How providers are evolving to simplify products

For many years, flexible benefits were seen as the preserve of large organisations with thousands of employees, based around the concept of offering employees a choice in the products they take out, often facilitated by the ability to trade one type of benefit for another or drawing on a pot of money.

More recently, the market has been evolving in line with changing customer needs. "Back in 2012, I started to talk about the fact that flexible benefits were changing," says Benefex founder and chief executive Matt Macri-Waller.

"This evolution is not new. It has been on the march for ten years or so, with people constantly demanding more choice, more flexibility, better communications and increased personalisation."

In some organisations, traditional flexible benefit schemes have become too complex and unwieldy, believes Vested Employee Benefits managing director Howard Finch.

"Having staff flex up or down core benefits is increasing the cost of providing those benefits significantly, while a lot of the larger firms which have made acquisitions have bolted benefits transferred under TUPE onto what they already had, so packages have become more complex," he says.

Employees, too, often find the systems too complex, he adds, and crave simplicity.

Shifting to Core-plus

Providers are responding to such trends. Aon principal Helen Payne says: "Some large employers are moving to a ‘Core-plus model' where only funded and tax-efficient benefits are managed via payroll and all other voluntary benefits are promoted via the flex portal using single sign-on, but employees transact directly with providers. This reduces complexity but maintains convenience, engagement and cost savings."

There are a number of advantages to having voluntary benefits on flex platforms, rather than offering them as standalone items, according to Zest Benefits head of product Alistair Dunn-Coleman.

"Using a benefits platform centralises the experience for employees, and can also deliver National Insurance savings of 12% for lower-rate taxpayers if applicable benefits are run as salary sacrifice.

"Providing a flexible benefits scheme means they do not have to visit ten different provider websites or complete forms to choose a benefit, and they can see the impact on their pay in one place to make the right decisions."

It is also an easier option for employers, he adds, as there is only one platform to manage and a single file to send to payroll and reconcile with invoices. Flexible benefit schemes are increasingly used as hubs for the wider employee experience, hosting elements such as pensions, holiday and reward as well as conventional benefits, says Standard Life head of strategy and development Neil Hugh. "The rise of ‘anytime' benefits is another contributing factor to ensuring benefit platforms are accessed all year-round, so this increase in employee traffic has made benefit platforms a logical host."

Simplification

Another development has been the introduction of standard packages, in a bid to go back to a simpler set-up.

As Willis Towers Watson senior health and benefit consultant Nick Patel points out: "Integrating benefits schemes with  legacy systems could be a cumbersome and laborious process, taking, in some cases, more than six months to complete.

"We are now seeing the availability of out-of- the-box systems that can be tailored to meet disparate business needs, which offer a far more intuitive, flexible and dynamic employer and employee user experience."

One consequence of this simplification in the market is a trend for smaller employers to introduce flexible benefit schemes, although these are very different to the complicated platforms of a few years ago.

"It does not necessarily need to be offered as flex, but there will be an increasing number of small- to medium-sized enterprises over the next two or three years using benefits technology to help communicate the benefits they offer," says Finch, whose firm targets businesses with between 100 and 750 employees.

"They will offer a range of good quality core benefits and voluntary benefits that employees can purchase through a platform. They will conduct benefits administration online and provide access to these benefits through a portal."

Standalone options

Such schemes are having to compete with standalone options, where employees can pick a range of voluntary benefits out of their received income.

"Flexible benefits do not have quite the same flexibility in practice as other benefit options as they require employees to vary their pay if they wish to opt into this system," points out Perkbox people adviser Louise Jones, one such provider.

"The emergence of new benefit platforms that provide a wider range of perks without the hit on the employee's pay has seen a movement away from the more traditional flexible benefits providers."

Expectations of employees are changing too, with many now wanting to choose benefits when it suits them.

Thomsons Online Benefits consulting director Jack Curzon says: "Flexible benefits are inherently inflexible. Choosing benefits from a list one to 12 times per year does not suit consumer expectations for experience, and that is where technology comes in.

"Processes that allow employees to choose benefits that are personal and relevant to them and claim this back on their benefits funding, rather than being restricted to a standard list, has transformed the benefits landscape."

Many employees now also expect to receive more of a consumer-type experience as they would in an online retail environment. The Willis Towers Watson Benefits Trends Survey 2019, for instance, found that 55% of businesses intend to create a shopping experience for members when they sign up for benefits.

Additional benefits

There are also more benefits being offered through flexible schemes, as they start to encompass other products which may have traditionally been offered separately or not at all.

"This is particularly true in the affinity benefits and lifestyle products arena," says Patel. "Where two years ago, the average number might have been about 12 staple offerings, such as dental, travel, childcare and gym memberships, today we can expect to see in excess of 20." Part of this is due to the fallout from changes to optional remuneration arrangement rules announced in 2017, which restricted benefits that qualified for salary sacrifice deductions.

Hugh says: "While questions were asked about the value of products that were no longer purely salary sacrifice - such as home technology, car parking, onsite gyms, non-funded health assessments and non-ULEV cars - the legislative changes also gave rise to a range of new products offering nothing more than spreading payments, high street discounts and National Insurance savings.

"Products as far-ranging as gin clubs to stem cell storage can now be found in an employer's suite of flexible benefits." One major focus for flexible benefit schemes is health and wellbeing products, often as a bolt-on to core products such as income protection schemes.

"We are seeing quite a number of providers now including virtual GP services, either at small cost or no cost," says Finch. "We are also going to see in the next 12 to 18 months far more around financial wellbeing."

This is seeing a wave of firms looking to give staff the ability to adapt pension contribution structures, to help employees divert funds into other savings products.

"We have seen a variety of ‘cash in lieu' options implemented, primarily targeting employees who declare they have reached, or are on target to reach, annual or lifetime allowance limits," says Hugh.

"The rise of ‘cash in lieu' options has also led to thinking on where else pension contributions could be directed, with some employers allowing the ‘cash' to be redirected into a variety of ISA products or even as student loan repayments."

Most of the traditional core products are still around, he adds, with the exception of the employer childcare voucher schemes closing to new entrants.

"We may have seen a slight reduction in the flexibility that is offered in core products such as life assurance and income protection, with additional complexities around tax legislation driving some employers down the route of fixed-level core funding - although this has not necessarily caused the administration of such benefits to move away from the benefit platforms," he adds.

Engaging employees

How organisations present and market flexible benefit schemes is also changing. "In the past, flex schemes have largely been communicated at the point of launch or ‘window' opening with a mixture of email, paper-based and employee presentations," says Broadstone director of employee benefits Craig Williams.

"However, many of the communication tools that were considered as add-ons are now becoming mainstream.

"Video content, SMS messaging, webinars and social media are often being used, in addition to the more traditional methods of communication as a way of better targeting mobile workers and appealing better to different age ranges within the workforce."

Communications also tend to take place throughout the year, he adds, rather than in the period coming up to a window opening.

There is also a trend towards targeting people in the way in which they would like to be approached, says Payne.

"There has been some early adoption of attitudinal segmentation where technology is used to ask employees questions about their personal preferences and they are sent specific communications tailored to their personality type," she says

"Results are showing this is more likely to change employee behaviour than generic or segmented communications based on demographic data."

Apps are also becoming increasingly popular, she adds, and give employers the benefit of being able to measure engagement and take-up.

There is still a place, too, for more traditional methods.

"Technology always plays a part in this space with continuous advancements in mobile and app solutions but employees still yearn for something physical," says Curzon. "Face-to-face meetings, paper posters and desk drops are more popular than ever."

Innovations

Over the next couple of years, we can expect to see new innovations impacting flexible benefits, says Dunn-Coleman. He highlights the need for artificial intelligence and machine learning to help employers make the most of the data they have about benefits and guide employees through a selection process, as well as a move to offer electric vehicles on a salary sacrifice basis, following the news that the benefit-in-kind will be 0% in 2020/21 for new electric vehicles.

"Offering these large investment products through salary sacrifice can save money for the employer and employee, while getting significant buy-in from the employee who might not be able to afford a new car and the insurance otherwise," he says.

Hugh, meanwhile, believes the market may well turn full-circle over the next few years: "As benefit platforms continue to evolve into a more complete employee value proposition, do not be surprised to see the return of ‘flex funds'.

"With such a wide variety of benefits and support on offer to employees, there is an indication from employers they would like to return this element of control to the employees, and this could be achieved by providing funding for their individual circumstances, as opposed to pre-selected benefits."