David Marlow, marketing director, Alexander Forbes Financial Services
From our experience the pension is taken as the most critical benefit of all and would think it will be the last to come under pressure. Our research shows employers are more avuncular than you might think when it comes to pensions. They do not like the idea of staff leaving their employment with financial difficulties and for that reason I would be surprised to see pensions cut back if there is a downturn, although the effect of levelling down to personal accounts is a different matter.
It is possible that some of the risk benefits could be cut back, though, particularly if employers are feeling inflationary pressure on wages. I would see private dental cover as most likely to face the axe, followed by, in the following order, private medical insurance, critical insurance cover, income protection and life cover.
These are the areas where employers who are feeling the squeeze may feel they can cut back on costs without attacking the benefits that are crucial to their staff.
Paul Jackson, employee benefits manager, Taylor Patterson, Preston
Unforunately for employees, during an economic downturn their employers will look at cutting costs wherever it is possible. This will commonly include, often as a first step, looking at employee benefits.
The most vulnerable benefits in my experience include health care plans – perhaps not axing them completely, but certainly looking to reduce costs. The most favoured route is to increase the excess on the plans [the amount a member has to pay before the balance cost of any treatment is covered by the insurer]. This has the impact of reducing the cost to the employer. Next comes long term disability plans – again, perhaps not the axing but cost reductions. This is obtained by increasing the deferred period i.e. the length of time a member has to be off sick before any benefit becomes due. This again has the impact of reducing the cost to the employer. The highest level of cost saving and generally the most expensive cost to an employer is the cost of the company pension scheme. Some employers have looked at reducing the cost of pension schemes by offering a lower level of employer premium for new members, with no change to existing members. This is more of a long-term cost saving.
Glenn Thomas,and managing director, Jelf Corporate Consultancy
Employers need to keep the benefits they are contractually obliged to provide – say, healthcare, pension, life insurance or income protection, so the non-contracted ones will be under threat: dental, health cash plans and voluntary benefits, where there are associated fees. At the end of the 90’s in the economic downturn, companies focused on cutting costs by cutting benefits or adding huge excesses to policies and getting a premium discount.
In reality, this had adverse risks. For example, with PMI, there would naturally be a reduction in claims, but untreated conditions got worse and NHS treatments didn’t happen quickly. Long term repercussions affected organisational ability.
Benefits have an important place in a recession. The company that saves and communicates its reward scheme will still attract and retain the best staff. The company that alters its benefits programme too far could have repercussions with long term loyalty adversely affected.
Employers should look at the benefits they provide, the level provided and make sure they are competitive, rather than over-generous. Many companies are over-insured or paying excessive fees and don’t know it. A full audit can show where cost savings can be made.