UK
London, 2 September 2010

• More companies now applying technology to communicate benefits via an on-line portal, to administer salary sacrifice and broader flexible benefit arrangements

A growing number of companies are planning to introduce technology platforms to automate their pension and other salary sacrifice arrangements and at the same time enhance the communication and flexibility of their benefit programmes, according to a survey by Mercer.

More than a third (37%) of survey participants at a UK-wide webcast event for HR and benefit managers said they were planning to introduce technology over the next 12 months to introduce new salary sacrifice arrangements or streamline existing ones and to provide greater benefit choice and improved communication through on-line access.

“Many companies have adopted salary sacrifice for their pension arrangements in the last couple of years, appreciating the significant savings in employer National Insurance that can be had. What we are seeing now is a growing interest in developing technology to automate this process, communicate existing benefits in a more cost-effective and engaging way, apply it to wider benefits such as holidays and voucher schemes, and offer greater benefit choice”, said Stephen Hempenstall, a Principal and Consultant at Mercer. “In some cases, the aim is to create total reward statements and eventually to introduce benefit choice through a fully flexible benefit scheme.”

One of the factors influencing this development, he notes, is the growing sophistication of technology, enabling benefit systems to communicate more readily with existing HR and payroll software and handle sophisticated data variables with greater ease.

He added: “On-line benefit platforms can be introduced at much lower cost than in the past and are now affordable to many medium-sized companies with, say, 200 employees or more. Savings made from salary sacrifice arrangements will often pay for the new benefit technology within the first year and possibly within only a few months.”

Companies with 500 pension scheme members can make potential National Insurance savings of around £100, 000 a year, based on an average salary of £30,000 and an average employee contribution of 5%. These savings will grow with increases in National Insurance contributions due in 2011. 

Mr Hempenstall added: “Pressure to secure greater employee engagement has generally been a catalyst in the search for benefit enhancements where HR budgets for this are minimal or non-existent. Offering employees greater choice can be a great motivator as benefits are targeted at individual employee needs.”

Notes for editors
Over 70 HR and benefits and compensation managers participated in the UK national web briefing which was held in July. Of the total, 46% currently operate salary sacrifice. Of the 54% who are not operating it, 43% are looking to introduce it in the next 12 months. The web briefing was entitled: “Salary sacrifice and technology - evolution”.

Salary Sacrifice allows an employee to forego earnings in favour of a larger contribution by the employer to a benefit such as a pension scheme.  A member earning £40,000 might contribute 6 percent per annum, or £2,400, into a company pension scheme and those contributions are liable to national insurance contributions (“NIC”). Under the new rates applicable from April 2011, the employee would then pay £288 in NIC (12 percent) on those pension contributions while the company would pay £331.20 (13.8 percent).

With a salary sacrifice arrangement, the employee could agree to ‘sacrifice’ £2,400 from their salary and, in return, the company would pay that amount directly into the pension scheme. Neither party would then be eligible for NICs.

A Company could redirect some or all of its NIC saving into the employee’s pension resulting in the employee’s pension scheme actually receiving £2731.20 in addition to the increase in net pay for the employee.