By Debbie Harrison The Government must consider applying Cat mark standards to protection products,...
By Debbie Harrison
The Government must consider applying Cat mark standards to protection products, savings and loans that will be sold through voluntary benefits schemes alongside stakeholder pensions from next April if it wants to avoid widespread mis-selling of non-regulated products. The most common voluntary benefits are permanent health insurance (PHI), critical illness, medical insurance and life assurance.
Martin Thompson, commercial manager at Sedgwick Independent Financial Consultants, said: "When stakeholder pension schemes are launched next April, providers will have an excellent opportunity to cross sell their other insurance and investment products to members of these schemes. Just because the stakeholder scheme is low cost and must offer fair terms, employees should not assume other products will offer equally good value."
The voluntary benefits scheme represents a sales process that cuts through regulatory consumer safeguards and is not recognised or regulated by any of the existing authorities.
Providers have a massive opportunity to make good the losses they make on their stakeholder schemes by cross-selling unregulated products on uncompetitive terms.
At the same time employers can receive substantial commissions from these sales yet avoid regulatory control, as they are not a recognised introducer of business.
The Benefits Alliance, a group of major companies that have joined forces to achieve competitive rates and terms for their employees, have put together a blueprint for good practice in voluntary scheme management. The Alliance members, which include Asda, the BBC, BT and Towers Perrin, together command a total active workforce of half a million. The companies' pensioners also have access to these benefits.
The Benefits Alliance does not make any money from the deals it negotiates. Alliance member Towers Perrin selects providers and negotiates premiums for the group. Towers Perrin consultant Martin Phillips, said, "We request that any commission the providers would usually pay is redirected into the deal to enhance the terms for the employees. Otherwise it would reduce the value offered."
Careful screening of providers and products is essential, not just from the cost point of view.
"Naturally the cost of the benefit is important," Phillips said, "but while we look for a competitive premium or price, we will not necessarily choose the cheapest. Equally important is the standard of service. Before we select a provider we investigate their administration and service track record and may visit their call centre. Some of the providers we use offer a dedicated help line for each member company in The Benefits Alliance."
Voluntary benefits, as demonstrated below, are not subsidised by the employer but are nevertheless considered as much an employee benefit as the guaranteed core items and products available through flexible benefits schemes (flex). While there is no employer contribution to a voluntary benefit, it can be attractive where companies use their bulk negotiating power to achieve wholesale terms for individual employees. Virtually anything can be sold in this way from insurance products, loans and saving schemes to electrical goods and cheap holidays.
There is nothing wrong with the concept of voluntary benefits. As with personal pensions, the potential for misleading employees lies in the sales methods employed.
Arguably, the role of the professional fee based adviser, who is remunerated by the employer, is crucial if a mis-selling scandal is to be avoided. Thompson said: "Stakeholder pensions will become the biggest voluntary benefit when they are launched in April. But they will not be the first."
Cut-price financial services and products are already available through a growing number of employer-approved voluntary benefit schemes. Where a fee-based professional adviser is used to select and monitor the voluntary benefit providers, these schemes can be a win-win situation.
Employers gain increased employee loyalty, while the employees gain access to products and services at wholesale rates, that is, 25-30% cheaper than they can purchase in the open market.
But the problem with worksite marketing, as it is called in the US, is the role of the employer, which represents a wild card in the regulatory system. Providers are regulated, or at least governed by a code of conduct and answerable to the Department of Trade and Industry. However, employers endorse these products and receive sales commission, yet are not regulated or governed by any such code. Admittedly the employee, who takes out an individual contract with the provider, has access to the Insurance Ombudsman (which now forms part of the Financial Ombudsman Service) but relying on the Ombudsmen to regulate is rather like slamming the stable door after the horse has bolted.
Product providers understandably are eager to sell in the workplace because they have the implicit backing for their products from the employer and gain access to a potentially huge market, particularly where these benefits are arranged on a multi-employer basis.
Employees, for their part, could be forgiven if they fail to recognise that products sold via the stakeholder website are not governed by the same tough rules that ensure the stakeholder scheme itself is low cost and offers fair terms. Employees will not be aware of the complete dearth of rules and will assume employers screen the companies they welcome into the workplace or permit to advertise on company notice boards, the back of pay packets and on the company's intranet.
Who then, will warn employees that caveat emptor still applies to anything their employer promotes?
Not the Financial Services Authority. And
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