The Changing Pattern of Benefits

January 21 2007 - New research has found that few people are taking advantage of 'cycle to work' schemes introduced by the government in 1999 to promote healthier journeys and to reduce environmental pollution. Schemes allow employers to loan cycles and safety equipment as a tax-free benefit and include savings in National Insurance contributions.

Watson Wyatt's Benefit Provider Research Report 2006 looks at changing patterns of benefits offered by 142 UK employers. It found that over a quarter of organizations have introduced cycle to work schemes, but over half report that less than 1 per cent of their employees have taken up the benefit. Only one company reported take-up of more than 5 per cent.

Kim Honess, head of flexible benefits consulting at Watson Wyatt said:

"Despite the low take-up rates many companies are happy with their cycle to work schemes because for those few employees who do take it up, it tends to be highly appreciated. We fully expect employers to continue to introduce cycle to work schemes, not least because the administration cost and hassle is fairly low."

The survey found a significant increase in the number of flexible benefit, salary sacrifice and voluntary benefit arrangements, with 60 per cent of employers introducing schemes in the last two years. Many have focused on standalone salary sacrifice arrangements for tax-efficient benefits such as childcare vouchers, bikes and pension contributions.

Watson Wyatt's report defines a flexible benefit arrangement as 'a formal trading mechanism where employees can increase and/or decrease the level of certain existing benefits (such as holiday) and/or a range of new benefits. Each benefit becomes a contractual benefit and an employee's contractual pre-tax salary will be adjusted up or down depending on their benefit choices'. A salary sacrifice involves 'the provision of any benefit where an employee has a reduction in their contractual salary in return for a benefit. Flexible benefit plans operate through salary sacrifice'. Voluntary benefits are defined as 'non-contractual benefits delivered either through a deduction from net pay or by payment from the employee direct to the provider'.

Companies offering benefits via flex or salary sacrifice schemes*

Benefit Childcare vouchers Private medical insurance * Dental Health screen Life assurance * Critical illness Personal accident insurance Hospital/healthcare cash plan Travel insurance Cycles Leisure/retail vouchers Critical illness (spouse) Health screen (spouse) Group income protection * Gym Mobile phone Life assurance (spouse) Concierge service Company car Wine

Percentage 94 59 45 38 38 32 32 31 31 28 24 22 20 18 16 14 14 10 9 5

* Likely to be provided as part of a standard benefits package rather than as new benefits through flex or salary sacrifice arrangements.

Kim Honess commented:

"The main driver for introducing salary sacrifice arrangements is to achieve tax savings. Other objectives include improving employee perceptions of the employee benefits package, improving staff recruitment and retention and increasing employee engagement, although these are more commonly cited as objectives for flexible benefits. Flexible benefits are also often introduced to help harmonise terms and conditions and is seen as successful in this respect. Employers told us that both flexible benefits and salary sacrifice arrangements have been successful in achieving tax savings. Flexible benefits plans were said to be reasonably successful in improving employee perceptions of the overall package, although not quite matching expectations. The impact of salary sacrifice schemes is much lower."

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