The need for effective employee benefits communication in the third sector

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Mybenefitsatwork is an employee benefits communication tool Mybenefitsatwork White Paper

September 2015

The need for effective employee

benefits communication in the

third sector

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Foreword

Executive summary

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Recent benefits research¹ highlighted the fact that nearly three quarters of employers (72 per cent) provide an employee benefits package to improve employee engagement.

Even with the changing

economic landscape of recent years, it seems this premise remains. It is a known fact that the provision of employee benefits in the workplace results in a more engaged, happier and appreciative workforce. A well- considered employee benefits package is also likely to support an organisation’s recruitment and retention strategy.

The employee benefits landscape is a complex one, encompassing everything from pensions, life assurance cover and private medical insurance (PMI), to critical illness cover, childcare vouchers, cycle to work schemes, gym membership and more.

Over recent years, the pensions landscape has undergone vast amounts of change.

Automatic enrolment

The UK’s larger employers (50+

employees) have already met their automatic enrolment duties, and - today - it will be affecting thousands of charities, as they now work towards their staging date; when employees have to be enrolled into a workplace pension.

The latter part of 2015 will be a real crunch point; with over 25,000 organisations due to stage by the end of the year. And in 2016, over 500,000 employers will need to start a pension scheme².

A lot has been made of the success so far of automatic enrolment and there is plenty to be positive about, but with only a small proportion of the UK’s businesses and charities having staged, there is still a long way to go.

Pension freedom

On 6th April 2015, the

Government introduced the most radical changes to pensions in almost a century. Anyone aged 55 and over now has the freedom to choose whether they keep their pension invested and draw on it as needed or cash in their entire pension pot.

The changes affect primarily those with defined contribution pensions, who need to turn their retirement pot into an income. However some defined benefit schemes will also allow a transfer out in order to access the pension freedoms. (However guarantees could be lost). It is therefore essential for anyone approaching or planning their retirement to understand the choices they have and the implications of any actions they choose to take.

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Whilst many will welcome the opportunities that pension freedom will bring, it may make decision making more complex.

Pension freedom seems to be accelerating the need for a real focus on workplace financial education. Large numbers of employers feel morally obliged to support their workforce - to help them in making the right decisions at retirement and for their financial future. And, rightly so, retirement is not just about the pension, it is about the rest of that person’s life, and the

journey that they will follow. With the vast amount of recent change in the pensions landscape, the Government has turned to employers to communicate the details to their workforce.

Equally, employees now also believe that the responsibility rests with their employer.

Research undertaken by Foster Denovo brand, Secondsight, highlighted that half (50 per cent) of HR professionals said their employees had requested access to financial education in the workplace. It also flagged that less than 20 per cent of employees have a solid financial plan in place and only 38 per cent have a vague idea about how to manage their money. The majority

don’t know how much their pension is worth, with only 11 per cent being aware of how much they will retire on.

In this Mybenefitsatwork survey, employers acknowledge that the responsibility lies with them, but has this become a reality?

Are we seeing a change in approach, or not?

Are the staff handbook and contract of employment sufficient methods of communication? How can an employee’s risk profile be managed? And where is the personalisation?

In this paper, we identify the issues preventing successful communication.

The importance of ensuring effective employee benefits communication

only

of employees are aware of how much they will retire on

of employers provide an employee benefits package to improve employee engagement

11%

72%

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The research has uncovered some interesting findings. What is clear is that employers need to become better at communicating the

benefits that they offer to their staff.

Ian Bird

White Paper overview

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With this research, we set out to look how well employee benefits are being communicated by UK employers.

In July 2015, we commissioned Atomik Research to conduct two surveys. The first survey went to 100 business employers and 100 charities. The second to 100 employees in businesses and 100 employees in charities.

Bringing the results of both surveys together, Mybenefitsatwork has been able to look into the issue of employee benefits communication.

The charity research findings provide the premise for this paper.

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Key findings

There is a good understanding of pension freedom

• 95 per cent of employers believe they have a good understanding of the options available to those aged 55 and over under pension freedom. Only five per cent state they have no or a partial understanding.

• 71 per cent of employees advise that they have a good understanding of the legislation.

• Interestingly, among

employees, males are more likely to claim full awareness of pension options (80 per cent) than women (63 per cent).

HR professionals operating in the charity sector believe the responsibilty lies with them to communicate pensions and benefits to their staff

• The vast majority of employers (95 per cent) believe the responsibility lies with them to keep their staff informed about changes to pensions legislation.

Employees believe the responsibility to communicate benefits rests with their employer

• The above statement is supported by the fact that that well over three quarters (82 per cent) of employees believe the responsibility rests with their employer.

The majority of benefit communication is via the staff handbook or contract of employment

• Just under half (49 per cent) of employers provide communication of their benefits via a staff handbook.

49%

state that this communication is done via a new joiner induction programme.

• Third sector organisations are less proactive in providing information on benefits compared to private sector companies.

Those asked indicated an average of 1.6 methods of communication, compared to 2.1 methods on average for private businesses. Over half of corporate employers offer financial advice to their staff with only one in four (26 per cent) charities offering individual help.

82%

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Commenting on the findings, Ian Bird, Business Development Director at Foster Denovo and founder of Mybenefitsatwork, said:

The research has uncovered some interesting findings. I understand the challenge third sector organisations face in balancing their budgets and delivering employee engagement. But, the findings reveal that charity employers need to become better at communicating the benefits that they do offer to their staff.

Communicating employee benefits via a technology- based solution does not have to cost the earth. We developed Mybenefitsatwork specifically for the third sector, in order to meet the demand as cost effectively as possible.

Improved benefits communication will lead to increased staff loyalty, engagement and retention.

It is my belief that if organisations are investing in the provision of benefits for their workforce, then it is essential that they communicate them. Without it, employees won’t understand or appreciate their benefits. And, employers won’t get a demonstrable return on this spend.

Lack of time and inclination prevent employers

communicating benefits to their staff

• When it came to

understanding why employers don’t communicate their benefits, over three quarters of employers (79 per cent) advised that this was due to a lack of inclination.

31%

stated lack of time was the main reason

• When asked, employees believed resource (63 per cent), time (52 per cent) and cost (47 per cent) were the main reasons why their employers didn’t communicate their benefits.

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Improved communication

= improved loyalty

• 91 per cent of employers believe that if staff had a full understanding of the benefits provided to them, this would make them more loyal and have a positive impact on retention.

• This figure stood at 89 per cent for those employees surveyed.

of employers provide benefit

communication via a staff handbook

49%

Ian Bird

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It’s important to remember that employers are not qualified to provide advice to their staff

when it comes to withdrawing money from

their pension, or indeed other financial matters.

Ian Bird

Survey findings - analysis

There is a good understanding of pension freedom

When survey respondents were asked if they understood the new options now available to those aged 55 and over under pension freedom, 95 per cent of employers advised that they did.

When it comes to employees, 28 per cent stated they didn’t fully understand all the options.

Ian Bird comments: “There has been so much hype and media interest surrounding pension freedom, which has potentially led many to believe they have a complete understanding of this new piece of legislation.

It is, however, complex in make-up, and I find it hard to believe that people have a real appreciation for terms such as:

‘uncrystallised fund pension lump sum’ (UFPLS). Their levels of comprehension are likely to be on a superficial level only.

“When it comes to financial matters, there is a tendency for people to believe they have a better understanding than they do.

“What people need to remember - employers and employees alike - is that failure to properly approach and manage pension freedom could have serious consequences.”

Ian Bird

This was one of the motivating factors behind Mybenefitsatwork.

We want employers and their staff to be able to access the information they need to make educated decisions.

“At all times, we also look to protect the employer; to prevent them from - potentially - saying too much or the wrong thing. Where people believe their comprehension levels are better than they perhaps are, this can lead to incorrect decisions being made - as outlined in the highlighted example overleaf.”

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For example

John Smith is 60 and is currently working as a Director at a large charity. He will earn £50,000 this tax year.

He has a pension fund of £50,000 and an outstanding mortgage of £50,000. He has heard that he can take the whole fund as a lump sum and has decided to pay off his mortgage now by drawing the whole fund.

Fund value £50,000

Less tax free cash £12,500

Amount taxable at marginal tax rate £37,500

To calculate the tax rate due you need to add the earnings in this tax year to the fund value less tax free cash.

£50,000 plus £37,500 = £87,500 (higher rate tax due at 40% for tax year 2015/6)

£37,500 less 40% tax = £22,500

Tax free cash + £12,500

Cash available to repay the mortgage after tax £35,000 (shortfall to repay the mortgage £15,000)

If John instead waited until he was aged 65, the age he intends to stop working and will receive his state pension, then he could withdraw the fund and only pay basic rate tax (assuming he had no other earnings)

Fund value £50,000

Less tax free cash £12,500

Amount taxable at marginal tax rate £37,500

To calculate the tax rate due you need to add the earnings in the tax year to the fund value less tax free cash.

£6,029.40 (State pension 2015/16) plus £37,500 = £43,529.40

After tax

Personal allowance (nil tax) £10,600 £10,600

Basic rate tax (20% ) £31,785 £25,428

Higher rate tax (40%) £1,144.44 £686.64

£36,714.64

Tax free cash + £12,500 £12,500

Cash available to repay the mortgage after tax £49,214.61 (shortfall on repaying mortgage of £715.36)

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Encouragingly, the vast majority (95 per cent) of third sector employers agree that they have a level of responsibility in keeping their staff informed about changes to pensions. And, this was supported by well over three quarters of the workforce, standing at 82 per cent.

Bird believes we have seen a change in mindset by the employer, but not in the approach.

“It’s positive to see that employers recognise the fact that they need to do something. But, I’m concerned that in many cases this amounts to little more than a staff handbook or new induction programme. While this may seem an effective way to communicate with staff, I question if this is the right approach given the potential exposure to financial issues later in life?

“The onset of automatic

enrolment and pension freedom, as examples, have meant there is a job to do now. The social and economic landscape is constantly evolving, and I believe there is an onus on employers to begin offering workplace financial education as an employee benefit - to help work towards preventing the much reported ‘advice gap’.

“Employers clearly accept that they have a responsibility to make employees more financially savvy. But what many fail to

recognise is that the provision of a financial education programme doesn’t have to be costly, and the benefits - increased employee engagement and understanding - are likely to hugely outweigh the expense incurred.”

The different communication methods

The survey uncovered that when it comes to physically communicating the benefits available, just under half (49 per cent) of employers communicate their benefits via a staff handbook.

Another 49 per cent stated that communication is done via a new joiner induction programme.

Overall, third sector organisations are less proactive in providing information on benefits compared to private sector companies.

Those asked indicated an average of 1.6 methods of communication, compared to 2.1 methods - on average - for private businesses. Only one in four (26 per cent) charities offer individual financial advice, compared to over half of corporate employers..

Bird believes that there is a danger in taking these approaches in isolation.

“Employees could - potentially - be joining pension schemes without having taken any real or proper advice. How is their risk profile analysed? And how is their retirement age set? Both questions I would be keen to ask, among many.

“A handbook can only provide high-level information, but what people need to remember

(employers and employees alike) is that through automatic enrolment, staff are entering into long-term contracts, where the employer has selected the default fund into which their money will be invested. And, whilst the employer has fulfiled their legal obligations, it boils down to the individual to contact their pension provider.

“I believe its important that employees are able to build as full a picture as possible about their retirement. They need to understand their retirement goals and whether they are on target to achieve them. Providing access to this information enables

employees to make well-informed decisions and feel empowered that they are in control of their retirement planning.

“Equally, employers need to remember that staff handbooks and induction materials offer no level of personalisation.

Each employee is effectively

‘standardised and dropped into a pension’, and they believe

The responsibility for

communicating changes to

pensions rests with the employer

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that their employer is doing the right thing. No one should make this assumption.”

Bird also goes on to flag the costly and time-consuming nature of the handbook - in terms of preparation and print. “Technology has the ability to replace a book that is rarely read, let alone referred to - times have changed.

“Different people take on board different mediums - from printed materials to video and live presentations.”

Interestingly, only four per cent of employers currently use benefits- based websites and intranets, due to the current low levels available.

More than one in four (26 per cent) of third sector organisations offer financial advice. “I was encouraged to read this”, says Bird, “but we have seen this statistic dropping off hugely in the last few years, and I expect this trend to continue. However, there will always be those employers that require this level of support and - I believe - it should form part of a wider benefits communication programme across an organisation.”

Bird comments: “Third sector employers face the additional challenge of delivering and communicating pensions and benefits in as cost-effective way as possible. They need to make every penny count whilst achieving a maximum return on their benefits spend”.

Not surprisingly, private sector companies are more active than charities in providing information on benefits, with those asked indicating that an average of 2.1 methods of communicating this are used, including over half offering individual advice, compared to 1.6 methods on average for charities.

Lack of time and inclination are preventing employers

communicating benefits to staff

When it comes to understanding the reasons preventing benefit communication, over three quarters of employers (79 per cent) advised that this was due to a lack of inclination. 31 per cent stated lack of time was the main reason.

When asked, employees believed resource (63 per cent), lack of time (52 per cent) and cost (47 per cent) were the main reasons why their employers didn’t communicate their benefits.

“I was surprised to read that cost didn’t figure more prominently here - standing at only 15 per cent”, adds Bird. “Clearly there is an apathy amongst some employers to effectively communicate the benefits they offer, in terms of time and inclination. However, given so many appreciate the onus lies with them, I am saddened to read these figures. They have a responsibility, and they need to find a solution that meets the need of their employees, whilst also supporting their own requirements. Technology has the ability to solve both issues and in a much more cost-effective way than many employers may think.

“Mybenefitsatwork can be used as part of a wider employee benefits communication programme - supporting staff and providing one aspect of quality engagement.”

Bird comments: “Like me, the workforce believes that cost

is one of the main reasons preventing employers from effectively communicating their packages to staff. This is clearly not the case, and I wonder how this perception will change over time as workplace financial education becomes more commonplace.”

The cost of

communicating employee benefits

Mybenefitsatwork does not come with a hefty price tag. From just

£100 a month per employer, their entire workforce accesses benefits information at the touch of a button We designed Mybenefitsatwork with the third sector in mind - appreciating the tight budgetary issues, with a need to ensure comprehensive employee communication.

Better

communication

= improved loyalty

91 per cent of employers believe that if staff had a full understanding of the benefits provided to them, this would make them more loyal and have a positive impact on retention The above figure stood at 89 per cent for those employees surveyed.

“These statistics speak for themselves; a workforce that is provided with better employee benefits information will be more loyal, adds Bird. “Recruitment and retention are key elements for any organisation looking to maximise revenues. I’d therefore argue that an assessment of the employee benefits communications programme is vital.”

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Mybenefits at work is a trading name of Foster Denovo Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: Foster Denovo Limited, Ruxley House, 2 Hamm Moor Lane, Addlestone, Surrey, KT15 2SA.

Foster Denovo Limited. Registered in England & Wales Reg. No. 05970987. Registered Address: Ruxley House 2 Hamm Moor Lane Addlestone Surrey KT15 2SA. Foster Denovo Enrolsme Limited. Registered in England & Wales Registered No. 08114721. Registered Address: 8 Eastcheap London EC3M 1AE.

If you are interested in learning more:

visit: mybenefitsatwork.co.uk

e-mail: [email protected] call: 0345 838 8380

Mybenefitsatwork

Mybenefitsatwork (mybenefitsatwork.co.uk) is a cost-effective online

communication tool. It enables employers to tell each employee about the benefits they provide, using a friendly, interactive website, which carries their brand.

Employers can use Mybenefitsatwork as the cornerstone of their induction programme for new employees and to support their recruitment and retention strategies.

Clients already using Mybenefitsatwork have reported increased employee engagement levels and positive user experience.

The website uses everyday language to help bring pensions and benefits to life and make them as easy as possible to understand.

And, to ensure that the site is accessible by all employees, including those with mild visual impairments, low literacy and English as a second language, Mybenefitsatwork features BrowseAloud functionality.

Unlike existing flexible benefits providers, the nearest tool in the marketplace, Mybenefitsatwork does not come with a hefty price tag. From just £100 a month per employer, their entire workforce accesses benefits information at the touch of a button.

Ian Bird comments: “Our experience has shown us that employers are looking for innovative and affordable ways to increase employee engagement and provide their people with the information they need to make informed financial decisions.

Mybenefitsatwork has been built to do just that.”

“Already we are in talks with a number of organisations keen to implement the tool.”

Foster Denovo

Foster Denovo Limited is a national firm of financial advisers with eight offices across the UK. Its 75+ Partners provide financial advice to individuals and families, businesses and charities.

Advice for individuals and families covers the full range of financial planning areas, including retirement solutions, estate planning, mortgages and protection.

The company operates a dedicated charity division, Foster Denovo Charity Solutions, which provides financial and employee benefits advice to charitable organisations and their staff.

Secondsight, the company’s dedicated multi award-winning employee benefits division, provides financial education, pension and employee benefits advice to corporate clients.

Ian Bird

Ian Bird is an Equity Partner and

Business Development Director at Foster Denovo, which has previously been awarded national IFA of the Year 2013*

and the Charity Times’ ‘Consultancy of the Year’ in 2014. He is also the founder of Mybenefitsatwork.

Ian has been a qualified adviser for over 25 years and is a highly experienced pensions and benefits specialist.

In addition to a number of corporate clients, Ian has created specialist employee benefits services for charities.

Working in conjunction with both ACEVO (the Association of Chief Executives of Voluntary Organisations), and CFG (Charity Finance Group) and their members, Ian and his team currently advise over 200 UK charities on their pension schemes and employee benefits.

He has helped many employers maximise their return on their investment into employee benefits whilst paying particular attention to the unique challenges faced by third sector employers.

Ian is passionate about the pensions market. He believes that companies like Foster Denovo have a key role to play in solving the pensions’ crisis and lifting the threat of poverty in retirement from workers in the UK.

The need for effective employee benefits communication in the third sector