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Reap the benefits

Alittle bit of everything in this article as I recount the historical progress within my own firm of the provision of various types of employee benefits. My personal specialisations are in pensions and investments but I have now quickly gained a decent working knowledge of small group life insurance, medical insurance and permanent health insurance schemes.

The first benefit I put in place was a money-purchase pension scheme about 10 years ago. Contracting out of Serps was a consideration but, fundamentally, I wanted to help and encourage staff (only about four of them at that time) to save towards their retirement, albeit many years away.

With hindsight, I perhaps should have followed one of my instincts and made the scheme contributory with a fairly commonplace structure of, say, pound for pound matching of employer and employee contributions up to an agreed maximum.

In the end, I made the scheme non-contributory with what I considered to be a generous structure of 1 per cent employer contributions for each year of service, starting immediately on joining.

Some of my staff were therefore credited last year with employer pension contributions of 10 per cent of their earnings.

This contribution structure was well-meaning but I regret it as few of my staff over the years have made any additional regular or one-off contributions of their own. Nor have they made widespread use of my salary-sacrifice offer, under which I rebate employer contributions to their pension plan.

So, here is a lesson perhaps for myself, other advisers and smaller employers.

With more or less a whole new set of staff coming on board, I have changed the scheme to offer 1 per cent employer contributions for each year of service but only where my contributions are matched by the employee.

Of course, I am aware of all sorts of ideas for pension structures for small or medium-sized employers but I think it might be useful for financial advisers to give a few minutes thought every so often to the key issues which are likely to be important to employers. These will ease the sale, help the employer and his or her employees.

First, some employers are driven by care for their employees and want to help them guarantee their long-term financial future. A generous pension scheme illustrates this and sends the right messages to the staff.

Second, staff retention. If the first message is properly communicated and appreciated by the employees, they will understand the feelings of their boss.

Third – and this follows closely from the second issue but is often overlooked by employers and their advisers – if the employer provision and its benefits are not properly communicated to the employees, then the employer contributions will be largely wasted.

Fourth, no matter how well intentioned the employer’s scheme or how well communicated the message, you can lead a horse to water but you cannot make it drink, as the saying goes.

A long-term strategy will only work to everyone’s benefit if the adviser ensures that all these considerations are understood, accepted and appreciated by all concerned. That sentiment leads me to my next employee benefit – private medical insurance.

A personal experience with NHS waiting lists led me to introduce a PMI benefit for all my staff. The more senior staff had their spouses or partners included in the policy. This is not one of my areas of expertise so I was surprised to be advised how cheap the cost of this benefit was as a percentage of payroll. OK, there has not subsequently been a claim but, of course, that is the point of insurance, isn’t it?

Most readers will know the reasons why employers might want to provide PMI cover for employees. Care about employees, certainly, but even if that is not a factor, then at least PMI gets treatment for staff faster than the NHS and gets them back to work faster.

Actually, as I am writing this article, I have realised that a long-standing hip problem from my football-ing days is getting prog-ressively worse. Might mine be the first claim?

Again, with hindsight, I might have introduced the benefit only for employees who contributed, say, 50 per cent of the wholesale cost.

And perhaps the same for permanent health insurance. I introduced this benefit a couple of years ago, again entirely employer-sponsored to pay benefits after my legal and (subsequently) ethical obligations cease.

To my surprise, the cost of this benefit was again remarkably modest as a proportion of payroll. New recruits now have to make a modest payment if they want access to this benefit.

Finally to the last of the employee benefits I considered – death in service benefit. Some advisers seem to believe this can only be provided alongside a final-salary scheme but that is not true. Some other advisers think it is only available to the very biggest of pension schemes – final salary or money purchase – but again not true.

The cost for even a small number of members is, in my opinion, exceptionally cheap but it was the only employee benefit I did not get round to providing, perhaps because I have a relatively young workforce.

But then, a very valued young employee died suddenly. No spouse and no children but a very big loss to family, friends, myself and other staff. Horrible. If they had had a dependent spouse or children – no money.

In summary, my guidance would be that financial advisers should not assume that smaller employers do not care or will not pay for pension and insured benefits for some or all of their staff. When they want to and will pay, then please make them aware that a request for employee contributions will show whether or not such expenditure will be properly appreciated.

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