I am an employer who put in place a benefits package for my staff over five years ago. I want to make sure that it is still good value and want to utilise technology wherever possible. What can an IFA do to help me?
One of the biggest recent drivers in the provision of employee benefits has been the stakeholder requirements introduced from April 2001. The group pension market is very different from even five years ago and will continue to change as employers move from defined-benefit to defined-contribution schemes, especially with the further legislation to be introduced. It is estimated that more than 7,000 DB schemes will be wound up this year.
With advances in medical science and increased longevity, the cost of protection has fallen. All employers should commission an IFA to review their employee benefits to ensure the best products are chosen and maximise cost efficiencies.
Without the provision of specific advice, many employees do not fully understand the benefits offered to them and do not bother to join employer-sponsored schemes, even though over 25 million employees are members of an occupational pension scheme.
The range of employee benefits can be split into non-tangible financial products, including income protection, death in service, private medical insurance, critical-illness cover and dental cover, and more tangible benefits such as discounts off consumer goods, extra holidays, concierge services, cars, bonuses, child care, bicycles, computers, flexible hours and alternative health treatment.
Communication of the value of benefits needs to be clear. Extra holidays and discounts score more favourably with employees than, say, PMI, where the cost has increased by over 50 per cent in the last five years. The cost and risk attaching to this view needs to be understood by employees.
Most IFAs who help set up and implement an employee benefits scheme have a process in place which can be broken down as follows:
The employer specifies benefits that it wishes to provide by budget or level of benefits.
The IFA presents the cost basis for its services on a fee or commission basis.
Analysis takes place of existing pension arrangements and employee benefits.
The IFA obtains initial costs from providers and determines options for employer.
Prior to presenting recommendations to the employer, the IFA supplies an application and administration guide to cover the options available and establish how the scheme and contributions can be most effectively administered.
The existing payroll needs to be printed out and signed by a director for money-laundering purposes.
Announcement packs are given to all eligible members.
A process is put in place to deal with enquiries and employee options.
Ongoing monthly administration of joiners and leavers.
One-to-one advice is given where agreed, covering issues such as retirement planning and divorce.
By compartmentalising the process as set out above, the IFA can provide its costs on a menu basis. Usually, fees will be charged although commission can become an option.
The IFA will carry out a beauty parade on your behalf to ensure that each provider can be justified against your benchmark criteria.
Technology-based admin solutions allow the most effective transactional efficiency in employee benefits. For protection products the ongoing administration is minimal but pension administration can be daunting.
An increasing number of IFAs have systems that can administer the scheme internally using bulk feeds and downloading from the payroll. Many IFAs can feed into providers' back-office systems so that the process is minimal and documents such as illustrations and valuations can be accessed instantly.
In future, providers will need to allow worksite access to the scheme details for employees. This will allow new employees to access information on the benefits package via the web and existing members to check on their benefits. Access via the web will simplify the process and entail less work for the employer.