The coronavirus catalyst — what the pandemic means for employee benefits

COVID-19 has been a catalyst for businesses.

For one thing, a recent McKinsey and Company report says we have vaulted forward years in terms of consumer and business digital adoption in a matter of around eight months.

But what does this mean for employee benefits? And in a fast-changing and often unpredictable employment market, how can businesses respond and change what they offer to better suit their own organisations, and their people, while keeping costs down?

One of our clients, a local manufacturing company with 90 staff, asked us to review the historic benefits it had in place. That said, given the current financial climate, we understandably had to work within a limited budget.

We were able to recommend a package, within that agreed budget, that gave the employees immediate improvements for life and income protection cover, as well as put in place a new pension structure that set the client apart from its competitors.

The historic situation

Some aspects of the existing package had raised concerns from new recruits and was exposing the client to more financial risk than necessary because of a shortfall in the income protection policy.

Specifically, the group life and income protection policies had historic waiting periods that no longer served a purpose and were even known to put off prospective new staff who were concerned cover would not start straight away.

Plus, group income protection policy cover stopped at 60-years-old. Aside from possibly being discriminatory, it meant the client faced a potentially significant financial liability to cover the shortfall.

There was no flexibility in the pension scheme which had been put in place some years ago and was established on a traditional contribution basis with the highest possible member annual management charging structure at 0.75%.

What we did

The client accepted our recommendations for a package overhaul, specifically —

  • The group life assurance and group income protection policies’ waiting period was removed, at no cost, meaning immediate protection
  • The income protection policy cessation age was changed to reflect the state pension age. This meant the employer was not financially exposed in the event of a claim and staff are now appropriately covered
  • Flexible options were added to the group life insurance policy so employees can now increase the life cover up to six times their salary
  • Salary exchange has been implemented for pension contributions, saving National Insurance contributions for both employer and members. As an illustration — from an average salary of £30,000, a 5% employee pension contribution and a workforce of around 90 staff, employers would see a saving of almost £19,000 a year
  • A new, more generous, contribution tier was added to the pension on a matching contribution basis, making our client a far more attractive employer than its competitors
  • The annual management charge (AMC) was reduced so members can see value from their investment growth.

The introduction of salary exchange and the National Insurance savings generated from this process, combined with the available limited budget, more than met the client’s needs with a significant positive response from employees.

Andy Eason is Director at Acumen Employee Benefits and can be contacted on 01224 001946 or for more details.