Rachel Vahey is head of pensions development at AEGON Scottish Equitable
The common belief is that in the past companies set up pension schemes fired on by paternalistic concerns.
To reward current staff and to make sure they were kept off the breadline when they did retire, as well as to recruit newcomers, by using the scheme as an advertisement of their ‘good employer credentials'.
But as time has past, the general feeling is these overall employer aims no longer hold true, and employees no longer appreciate their employers' endeavours anyway.
AEGON recently carried out some research, in conjunction with Edinburgh University Business School, to establish what type of employee benefits employers chose to spend their money on, and whether they were maximising the return on their investment benefit. The findings make interesting reading.
Firstly, there is a lot of money being spent out there. Employers are spending £70 billion a year on employee benefits, with the vast majority of it being spent on pensions, both defined benefit and defined contribution. This spend is equivalent to 15% of the country's total payroll. But is this a good use of money?
The frightening thing is most employers do not know the answer to that question. Only 7% of companies formally assess return on investment from benefit spend, while 44% have no formal measure at all. Employers can only begin to measure the value of their investment if they know how much they have spent; and 29% did not.
Employee benefits could be considered a good use of employer money, if employees valued what their employers were doing for them. However, it appears from our research employees generally do not appreciate their employers' efforts. 35% of employees have a negative view of their benefits package, while less than 40% are fully satisfied. And employees just do not realise how far employers are digging into their pockets. Around half of employees believe their employer spends 9% or less of total remuneration on benefits. When, in fact, the actual average is 15%, considerably higher.
The good news is pension provision is the highest valued benefit by employees. And that at least reflects where the majority of employers' spend is focused.
We are now entering a period of change, which will affect conversations on return of investment on employee benefits. Automatic enrolment will up the stakes by making sure every employer offers basic pension provision.
If the DWP can pull off the trick of running an effective public awareness campaign of the benefits of pensions and why saving is good for you, then there is less chance of employers' messages falling on deaf ears. Instead, employees might be a bit more appreciative of employers' efforts.
The second big change looming is the increasing likelihood that the UK default retirement age will be removed. If so, employers may return to basics, and view their pension scheme as a way of helping employees to be able to retire in dignity, rather than have to work on for financial reasons. Employers face the challenge to improve the reputation of their benefit packages. They can do this by focusing benefit provision around a core offering of pensions and healthcare, and then fine-tuning these to meet differing lifestyles.
Secondly, they can set a clear strategy and focusing specifically on what the company wants to achieve, rather than following what their closest rival is doing. That way the package is fit for purpose, employees know and appreciate what their employer is doing for them, and employers get a return in their investment.
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