Nick Martindale looks at why annual benefit windows are becoming increasingly anachronistic in a 24/7 world and assesses the challenges and benefits for employers offering more frequent updates.
For years, generations of employees have been used to choosing their employee benefits once a year, often in January or at the start of the tax year in April. From an employer's perspective, this has made sense, providing clear start and end points, and requiring a once-a-year communications push and focus on the administrative burden.
"Flex was largely driven by the requirements of the employer to streamline administration and it tended to focus around the more traditional benefits such as group life or income protection, private medical insurance or pensions," says Andrew Woolnough, value proposition director at Willis Employee Benefits. "But now the focus is more on the employee and it's largely about wellbeing, in terms of both health and wealth. If you're focusing on something that goes on every day, you can't wait once a year."
The expectations people have in their personal lives is also making the annual benefits window appear increasingly anachronistic, says Matthew Gregson, consulting director at Thomsons Online Benefits. "People want a more consumer-like experience with their benefits," he says. "They feel it's completely arbitrary that there is an annual window and they can't just log in in a random month and select dental cover, because if they were a private individual they would be straight on to a comparison site and would find the cover they want there and then."
Around 90% of clients are now making at least some elements of their benefits package available either anytime or during a window each month, he says, although only around a quarter are doing it to the fullest extent. "We typically recommend three weeks on and one off, so a three-week enrolment window and then a week for all the automated reporting and payroll checking to be processed," he says. "So in theory you only have a week a month or 12 weeks a year when the employee can't log in and make an active benefit choice." Having one week off a month also provides employees with a clear cut-off point, he adds, and means employers can offer clarity over when benefits will start the following month.
As well as pleasing employees, offering benefits more frequently should help employers too, on account of greater take-up and engagement levels, believes Ed Smithson, head of flexible benefits at Xerox HR Services, particularly if they tie this in with particular initiatives held throughout the year. "I personally like the idea of multiple-focused windows so perhaps a focus on health and wellbeing, or finance and security, because sometimes there is this kid-in-a-sweet-shop effect with offering people 20-odd benefits, and very often people just stick with what they have got because it's just too much to make that decision," he says. "But moving to either multiple windows or anytime benefits has to be the way forward."
For some more seasonal benefits, allowing employees to sign up at different times of year can have a significant impact on take-up rates. "I enjoy cycling all year round but, for many, the prospect of joining the cycle-to-work scheme in the dark and damp winter months is not attractive," points out Steve Edgell, chair of the Cycle to Work Alliance and director at Cycle Solutions. "Where employees are able to sign up at any time, we see a real interest in the cycle-to-work scheme throughout the year, with particular peaks in Spring, Summer and early Autumn."
Making a decision on such a costly benefit can also take time, he adds, and many employees find a three or four-week window once a year is too short. "Employees need that extra breathing space and time to select the package that is best for them," he says. "We work with employers to promote the cycle-to-work scheme throughout the year by visiting their sites with our pop-up shop roadshows and Dr Bike servicing sessions. Promotional emails, tweets and updated posters and flyers can also be used more effectively to ensure we get year-round awareness of the scheme."
Yet there are other benefits where this works less well. Kim Honess, head of flex consulting at Towers Watson, says buying and selling holiday is one. "That tends to be offered only on an annual basis because it is a bit messy to do as an anytime one, because you have to work out part of your entitlement, and if you have part-timers it gets too complicated," she says.
The other problematic area is insurance-related benefits, with many suppliers reluctant to allow people to join whenever they want because of the risk of people signing up in expectation of having to make a claim. "With things like life assurance providers will put rules around it saying you can only change it at certain specific events, such as if you get married, have a child or get divorced; those major things that happen in your life which mean you might want to add a child or have a spouse removed," says Honess. "The insurers are trying to protect their claims, and that in turn affects the rate, so ultimately that is still good for the employee." This would affect critical illness, life assurance and income protection, she adds.
With other health-related benefits, employers will have to make a call. Smithson, for instance, points out that having an employee assistance programme which individuals cannot access when they need it would be counterproductive. "But in turn that has the potential to skew the costs and make it not quite such an attractive benefit as having just a single point of entry once a year," he says. "Employers need to balance up the scheme design, which is just as important as the access to the scheme. That is the challenging part; finding an insurer who will give you a truly flexible product at a price that is attractive to the employees."
Insurers and other providers are certainly coming under pressure to be more flexible. Gregson says many cash plan and even some medical plan providers will now allow people to join throughout the year in exchange for premium increases of 2, 3 or 4%; a price he believes is worth paying. "The only thing where there is still a real restriction is around things like life cover and income protection, where there is simply too much risk," he says. "But whereas in the past a good programme might have had 15 to 20 benefits, all of them only selectable once a year, we're now in a position where 17 of the 20 are now available in any month, and it's only the likes of life cover and income protection that are still once a year, unless they have had one of those life events."
There are other benefits to having a once-a-year approach, or at least a firm cut-off point, believes Honess. "If people can do things any time they will never get round to it," she says. "Even on the annual windows there's usually a huge peak on the last day or two days of the enrolment. People naturally leave things to the very end of when they can do it, so if you let them do it any time they will never get round to it."
This isn't an argument that washes with Gregson. "That perceived wisdom that you focus all your effort and energy at one point in the year was purely people's justification for making their own lives simpler," he says. "What we have found is that if you communicate to employees really clearly throughout the year, then they do tend to wake up and log in and make that choice." Such an approach has the added benefit of allowing the kind of seasonal messaging around initiatives such as gym membership or bikes-to-work, he adds.
But there is also concern over the additional burden this could place on employers, and particularly payroll teams. For all its suitability as an anytime benefit, cycle-to-work is one that can create an increase in administration which some employers may feel is not worth the effort, says Honess. "Any benefit where there is some sort of transfer of assets at the end requires a declining balance to be held on the system, so if you make those anytime then there is the potential to add in administration and you then have to ask if it's worth it," she says. "With cycle-to-work you tend to only get a 2% take-up level on average, so if you allow people to do it anytime and payroll have to do extra work it may not make sense."
The ability of suppliers to cope with year-round benefit choices - particularly with their own back-end systems - can also be a restraining factor, admits Gregson. "You can give a great front end to employees which feels as if they're online shopping but the quality of that back-end process from the supplier is still a challenge," he says. Employers, too, can be constrained if they're not using the right platform, with some still relying on spreadsheets rather than automated files.
HR and benefits teams could also find their workload increasing, warns Jamie Mackenzie, marketing director at Sodexo Benefits and Rewards Services. "Anytime benefits schemes could potentially see employees' questions about the initiatives brought to HR all year round, rather than being contained in the allotted benefits window," he points out. "This could drain HR resources, and can be less convenient than answering all questions at once."
Having a year-round or multiple window approach will also mean any communication exercises need to be conducted more frequently too. "Campaigns need to be run at regular intervals to increase take-up and awareness," points out Mackenzie. "With technology allowing anytime access to digital platforms and real-time updates, the most successful benefits schemes will enable employee communications to cater for scheme alterations, additions and news. This may be more time-consuming than placing all communications in a chosen annual benefits window, but it is also likely to result in stronger engagement and employee uptake."
In future, employers will increasingly need to find the balance that works for them, given their own resources, employee requirements and the benefits they want to run. "It's not a case of one thing or another; you do have to think about this benefit by benefit, and they fall into groups," says Honess. "There are some which work perfectly well as anytime benefits and some that the insurers will not allow to be anytime benefits, for very good reasons.
"Then there are others that just work better one way or the other; things like holiday will always be seen as an annual choice and that just makes sense. It's then the call to action which is the focus for communication." An annual event such as a benefit fair can have a big impact on take-up too, she points out, potentially more so than with regular emails.
Woolnough, meanwhile, believes there will eventually be two parallel schemes; one an insurance-focused selection on an annual basis, and the other a reward or benefits package which can be accessed at any time. "The annual window will carry on, but it will be side by side with flex," he predicts. "Benefits such as income protection, critical illness and death-in-service are part of being a good employer so that market is not going to go anywhere. The reward and benefits are part of a reward calendar, where clients look at the next 12 months in terms of HR and risk and think about what they're going to do, and that's ongoing. So part of the mix is an open enrolment window, and there will be less emphasis on one big event once a year."
The overall direction of travel from an employee point of view, however, is undeniable, and employers which remain entirely wedded to the concept of an annual window could soon find themselves at a disadvantage compared to their more dynamic and adaptable peers. "We live in a society where everything is available with the internet pretty much instantly, so having to wait for anything seems to go against that," points out Smithson. "As employees' expectations continue to grow, there will be the need to have increased flexibility. That just sits with modern life."
Guy Opperman has rejected calls to speed up changes to auto-enrolment (AE) despite increasing pressure to boost contribution rates and overall savings pots.
Pensions and Benefits UK 2019 is delighted to announce the launch of our programme for this year, celebrating 20 years of bringing you the latest updates on all things pensions and employee benefits. Register for your place today!
PP has compiled a list of what to watch out for over the coming months.
Willis Towers Watson's LifeSight is the first master trust to be granted authorisation by The Pensions Regulator (TPR).