Traditionally, benefits have been managed on a disjointed basis with each benefit provider operating their own administration process with the employer (with varying levels of input from the intermediary).
The intermediary role is typically focussed on product recommendations, employee support and troubleshooting.
Some intermediaries have developed more robust service propositions but these are mostly delivered for specific benefits (e.g. pensions administration, medical insurance claims managements/trust administration). Few offer a cross benefit service with a single interface between the employer and intermediary for all benefits.
However, there are significant advantages to operating an integrated benefits management service across all the benefits for all parties (client, intermediary, benefit providers) and strong external drivers that support this approach. For employers seeking to offer a more modern style of employee benefits (like flex), this approach is tantamount to a requirement but it is relevant for all organisations where employee benefits form an important part of their pay strategy.
The fundamental issue is for the service provider (the intermediary) to take responsibility for maintaining the definitive set of employee benefit data. Traditionally, this data would not be in one place, with employee details held by the client (payroll or HR system), benefit records held by the various benefit providers and advisory, commission and other ad-hoc records held by the intermediary.
Using an integrated approach, the intermediary takes responsibility for the accuracy and storage of the benefit related data and this becomes the definitive data set used by the employer and benefit providers.
It works as follows:
- The employer formally agrees the rules of the scheme, including eligibility and pricing, with the intermediary and benefit providers. The employer also agrees to provide the intermediary with details of employee data changes by an agreed date each month.
- Each month the intermediary adjusts, or employees select, (depending on how flexible the scheme is) the set of benefits applicable to the changed employee data.
- The intermediary then provides the benefit providers with the modified benefit data each month.
- Based on the benefit data the intermediary produces expected monthly billing information for the employer who, when they have received provider invoices, can easily reconcile and settle them.
- Also, the intermediary provides a payroll adjustment report by an agreed date so the employer can make any appropriate adjustments to their employees’ pay.
- Finally the intermediary uses benefit data not only to manage the monthly benefits but also to provide year-end reports to enable the employer to complete their benefit-in-kind returns and also to support provider reviews and rebroking.
It is important to note that the integrated approach is not about selling a website – web based systems can help support the service but the offering encompasses many things including the advice and management of all employee benefits, employee support and the delivery of a robust business solution for the client. An integrated approach also makes it easy to introduce other service elements like Total Reward, flexible benefits, new benefit options, analysis of employer benefit spend, audit and compliance of benefit processes, compliance with HM Revenue tax rules, compliance with employment law, etc. etc.
The key benefits can be described as follows:
Main advantages for the employee:
- Choice – providing a wider range of benefit options is attractive to employees
- Personalised information – e.g. web based pension valuations, total reward statements, tax modellers, benefit upgrades with accurate pricing
- Access to savings – high levels of tax savings and discounts
Main advantages for the employer:
- Cost management – scheme funding, inflation control, etc.
- Better employee engagement
- Single point of contact for all benefit support and administration
- Auditable and accurate benefit information for compliance purposes
- Simple year-end P11D data reports
- Outsourced administration reduces internally costs and hassle
- Platform to efficiently handle legislative/tax changes (e.g. pension tax for higher earners, 2012 reforms, salary sacrifice)
- Management information reports
- Platform to build modern reward offering
Main advantages for the intermediary:
- Build a more structured relationship with clients (SLAs)
- Attract new clients with differentiated service proposition
- Easier to sell new products/services (e.g. salary sacrifice, personal investments, etc.)
- Easy access to data for rebroking services
- Platform to deliver benefit developments (new options, flex, total reward, etc)
- Establishment of formal service to support fee structures
- Internal cost efficiencies
Defending clients from other EB service providers – an illustration of what’s happening in the market
IFA C needs to change the way it does business. Currently they are a traditional corporate IFA who are primarily interested in pensions and pensions advice. They delegate/sub out/give away some or all other employee benefits business.
Employer E needs to review its employee benefit setup. The HR department is under pressure from corporate purchasing (too many disjointed suppliers), finance (need to better control/predict and save costs) and management (perception that there is no dynamism in the EB package).
In looking around for ideas HR come across web based total reward statements and then make contact with some suppliers to get some ideas.
IFA C then find themselves on the defensive threatened by "one stop shops" using automated systems to provide an integrated benefits management service.
How an integrated benefits management service helps
If IFA C already operated an integrated approach, the delivery of personalised Total Reward Statements would be relatively simple. All the data would already be held on systems and therefore the client would just have to choose the design and delivery mechanisms. The cost and disruption of working with a new provider would be significant and unlikely to be attractive to the compared with their current provider.
It is also likely in this example that the account manager would have already discussed Total Reward, along with a range of other new ideas, with the client so they may never have gone to market in the first place.
Traditional approach overview
Integrated approach overview
