As an employer, you invest time and money putting together a benefits package for staff. The reasons for doing this will almost certainly fall into one of two categories: –
- For recruitment and retention of staff
The latter will be the reason for most employers and it makes sense to construct a benefit package in addition to paying salary from a tax and National Insurance perspective.
In fact, many employers have had such schemes running for many years. Certainly, long before the advent of automatic enrolment into Workplace Pensions. But these have tilted the playing field and established benefit packages now need reviewing to ensure competitive advantage is maintained.
Take Max Stomping Ltd. For many years they have run a pension scheme for their employees. Staff joined after a 3-month probationary period and Max Stomping would match employee contribution rates up to a maximum of 5% of salary. In other words, a member of staff could have up to 10% of their pensionable earnings paid into their own pension plan for their future retirement benefit.
Max Stomping’s competitors were less staff-centred and many decided that as pensions weren’t a legal requirement, they simply wouldn’t bother. For prospective employees, the choice was clear. Similar companies paying similar salaries for similar jobs could only be differentiated by the generosity – or otherwise – of the company pension arrangements and Max Stomping were an employer of choice.
Then along came automatic enrolment (fronted by Workie, but I think I’ve banged on about him long enough now). And, suddenly, all employers had to have a pension scheme. Of course, this threatened Max Stomping’s competitive advantage but only superficially at first. Contribution rates, as required by Government, were only 2% combined from both employer and employee. Hardly a patch on a potential 10%.
And then contribution rates started ramping up. In April 2018, the overall minimum became 5%. And, as we all now know, this April the combined rate is 8%. And, not having reviewed its benefits in the intervening period, Max Stomping doesn’t quite look as attractive as it did.
Now I could go on to talk about Qualifying Earnings or basic pay (as long as it’s at least 85% of total payroll) as being the parameters on which pension contributions are based because that’s all important but, actually, will prospective employees consider – or even understand this – or will they simply say Max Stomping isn’t as good as it used to be “… so I’ll join their rivals, Cushion Soled Wellingtons Ltd.”?
Max Stomping may well point to the fact that, not only do they have the pension, but all staff also have Group Life Assurance of 4x salary and there is a Group income Protection scheme that ensures employees will continue to receive an income in the event of long-term inability to work through illness or accident.
For most employees, these schemes, although welcome, will not be a deciding factor as, frankly, no-one wants to think about dying at work or suffering a catastrophic event that is likely to keep them off work for 3 months or more.
So, what do Max Stomping do? The easy answer is increase pension contributions. But can they be a bit more creative? Can they introduce Salary Exchange, for example? This would save National Insurance that could be used to offset the additional cost of the pension contributions. Or could they introduce some sort of grading whereby more senior staff are given higher contributions (care needs to be taken to ensure no indirect discrimination takes place)?
The point is Max Stomping can’t afford to sit back on its laurels and assume that because they have always been ahead of the curve on their employee benefits, they always will be.
We counsel individual clients that annual reviews are an absolute necessity on their investments and the same is true of employers. Failure to review benefits will mean losing more and more competent staff to competitors, whether it is those leaving “because the grass is greener” or those who simply never apply for jobs because there is nothing to differentiate Max Stomping ltd. from Cushion Soled Wellingtons Ltd.
This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned about the content hereof and any such action or inaction. Professional advice is necessary for every case.
For a review of your benefits package, please contact us on 0333 241 3350.
Peter Murphy Dip PFS