Buck Bond Group
Employee benefits and COVID-19

Employee benefits and COVID-19

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In 1999 – and I suspect unwittingly – Gordon Brown, as Chancellor, launched a revolution in the provision of employee benefits by allowing employees to buy a bicycle using salary sacrifice. A part of the Labour Party’s Green Transport Plan, the rules allowed an employee to save both Income Tax and National Insurance on the purchase of a bicycle, so long as the bicycle was used to cycle to work. Coinciding with this launch was a change in childcare vouchers, where up to £243 per month would be free from Income Tax and National Insurance. In both instances, employers would also benefit from savings in National Insurance at 13.8%. With the two parties in the employment equation now incentivised, the benefits became mainstream and resulted in the development of new technology solutions to help with employee engagement and administration. 20 years on, the Cycle to Work Alliance estimated that over 40,000 employers were engaging in the Cycle to Work scheme, helping more than 1.6 million commuters to cycle to work.

With salary sacrifice becoming more commonplace, Gordon Brown was arguably the legislator responsible for introducing flexible benefits more widely into the UK workplace, facilitating provision of more benefits in the reward package and allowing employees greater freedom and choice. But what’s changed since?

In the main, it’s all been about pensions. In 2001 Stakeholder pensions were launched; in 2012 employers were obliged to meet certain employer duties and enrol eligible employees into a qualifying pension scheme and in between these dates in 2006 we had pensions simplification.

Pensions aside, the only meaningful change in employee benefits design arose in 2006, when it became possible to offer employees a larger multiple of salary as a lump sum life assurance benefit. In other respects, the UK benefits market has broadly continued along the same lines, providing employees variously with income protection, private medical, critical illness, travel and personal accident cover and a range of voluntary benefits along with retail vouchers. To those of us familiar with benefit design prior to 1999, this array is a veritable benefits supermarket and many millions of employees have been fully engaged and made selections, hopefully to their advantage. On balance though, not much has changed in 20 years.

Then COVID-19 happened.

While wellbeing has been on the HR agenda for a few years, both from a financial as well as a health perspective, the arrival of lockdown has resulted in significant focus now being given to this arena, and everyone is involved. From the shop floor to the boardroom we have all been impacted by COVID-19. From an employee reward and compensation perspective, lockdown has brought the need for financial resilience into sharp focus. Not just for companies but especially for employees. By improving financial resilience through facilitating employees’ needs for short term saving, reducing debt and managing day-to-day living costs, companies will go a long way to help reduce workplace stress and improve mental wellbeing, and in return benefit from gains in engagement and productivity.

How will this be achieved against the background of focus on budgets and the need for HR to control or reduce spend? In the last thirty years, ignoring pension schemes, benefit design by weight of cost to the employer has historically centred around the provision of insurance products, designed to meet a need for the employee, primarily in the event of ill-health or passing away, but also to help the employer with both cost and reputational management.

This ‘traditional’ design was born from legacy pension design, mainly final salary where pension benefits became payable in the event of ill-health or death pre-retirement age. However, outside of the public sector these pension schemes are now in the minority and rapidly disappearing, though the add-on benefits for ill-health and death have remained. Perhaps now is the time to rethink benefit provision, cast out traditional design and reallocate spend to benefits which help employees meet today’s needs as well as tomorrow’s.

So what changes can we expect in benefits design during the ‘20s? I predict we will begin to see the unbundling of traditional programmes, with less emphasis on insurance products, and the empowering of employees to make choices that suit their lifestyle and needs, with employers providing the educational and guidance tools to do so. The UK Government may also play a role if they make further adjustments to tax reliefs which reduce the incentive for longer term savings. If this results in improved financial resilience then employees, companies and society as a whole will benefit. Though naturally it’s a balancing act, as long-term saving must also continue to be encouraged.

Some 20 years later, and with public transport restrictions arising from social distancing requirements, the cycle to work scheme remains in vogue. Gordon Brown’s legacy as an influencer of UK employee benefits design and the development of associated technology for benefits communication and administration is assured. If my predictions on benefit redesign hold true, technology is going to play an even greater and more important role than before.