It has been over a year now since the first corporate wrap propositions were introduced on the market. During this period there has been a flurry of activity of both concepts and actual propositions being launched.
An interesting observation has been that these propositions have come in all shapes and sizes. We have seen propositions leading from flexible benefit platforms, investment-led platforms, financial education and guidance portals and group personal pensions with access to some flexible features. Some have been aimed at the largest of employers and others designed to fit across the wider small to medium-sized enterprise market.
So what makes a good corporate wrap platform and which ones will succeed?
The best corporate wraps are truly customer-centric propositions. Only those which engage with the employee and attract them enough to use the proposition will be the winners. Why? Well, products and services in the workplace are predominately offered at arm’s length. Employees tend to be offered access to pensions and other flexible benefits products at their own discretion. Auto-enrolment might change things but when you hear of poor take-up rates from existing pension schemes with generous employer contributions you can see the real challenge the industry faces. My point is no one will be sitting down and signing up employees and adding their assets onto a corporate wrap as they would do with an individual wrap. Therefore my view is that only those corporate propositions which are intuitive, easy to use and give real value to employees are likely to be compelling enough to encourage staff to use.
In general, workforces are varied with a small element of high earners and those with significant assets however the real success lies in connecting with the wider workforce.
Research clearly identifies the number one need of employees as access to financial education and guidance in the workplace.
Many of these new corporate platforms focus on financial education and the use of interactive tools to engage employees in their wider financial well-being. Pensions as we know are very complex and this is how they are perceived by the general public. Providing employees with a more interactive way to learn about their pension scheme can only help them begin to understand and value the benefits being provided by their employer.
We have already seen extensive research in the workplace pensions arena that shows a large proportion of employees do not even know what they or their employer are saving into their pension scheme. This creates a couple of problems in that the employee clearly does not value what their employer is contributing, and second, they can not begin to plan properly for retirement if they do not know what they are currently paying. Anything that can help bring this to their attention has got to be a good thing.
The ability to include deferred benefits into the mix will also help bring a greater sense of reality to the individual’s position at retirement. Being able to hold all of these benefits on one platform will not just help individuals in the saving journey but will help them when they begin to approach retirement itself.
With many of these propositions leading with financial education and engagement I believe this begins to challenge the title of ‘corporate wrap’ with that of ‘workplace savings platform’ feeling like a closer fit.
With these points in mind, the products available on the platform become less important to the employee and employer. The employer will want to ensure that any available products are suitable for their workforce and will expect some form of discount or enhancement to demonstrate the employers bargaining power.
Products
So what kind of products do you need in a good corporate wrap?
The reality is that products and benefits provided by an employer tend to relate directly to the employees’ pay. This, by default will mean that they will be regular premium by nature and will need to be available as a payroll deduction option. They also need to be simple enough for the employee to understand and to enable them to make their own informed choice about their relevance to them. In the same way that the majority of employees will choose the default fund in the pension scheme they will also look for a similar offer for an investment-based product.
Cash will be king so a cash Isa and savings account is a must.
The concept of feeder funds, where an Isa is used alongside a pension as a way to attract the non-savers such as younger members of staff into the pension scheme, has been talked about widely. These platforms provide a large step forward in being able to bring this concept to life, however there still remain many challenges to make this a mainstream proposition.
Obviously the main hurdle at the moment will be automatic enrolment as employers will want to ensure that they are meeting their legal obligations first, before worrying about introducing an Isa option. With minimum contributions and qualifying criteria for automatic enrolment, the Isa option is only likely to be available when certain minimum criteria have been met therefore making the concept more complicated.
With no tax breaks for the employer contributions into an Isa then the incentive for the employer to pay into them is also a further challenge. Instant access to the funds is also a problem for both employees and employers. Although no one likes locking their money away it does provide an element of comfort to some, that the money is tucked away until retirement when they know they will need it.
The instant access of Isas does not always fit comfortably with every employee and employer. Although right now it is difficult to present Isas and pensions as a single structured proposition it is a position that can be built from.
Providing a platform that positions the company pension at the heart of an individual’s overall financial wealth and allows them to build the rest of their financial assets around it will help them engage with the topic, while at the same time helping to combat some of the myths around pensions and improve the employees trust in them.
This has got to be seen as a long-term strategy. If we ask the employee to commit time and effort to build their financial data onto a platform, commit to other savings products and begin to trust the platform as source for reliable information and guidance we must also commit to providing continued access should they decide to leave their employer.
It is an interesting concept for a pension provider as one of the main reasons for leaving employment will be retirement. The providers’ active relationship with the customer probably ends with the setting up of the annuity. Financial and budget planning becomes even more relevant in retirement and these platforms should continue to provide the employee with the support they need and extend our relationship with them long beyond its current term.
This is where we need to be clear of the differences between an individual wealth wrap and a corporate wrap.
A corporate wrap will be a collection of savings products, pension products and other financial benefits provided by the employer, wrapped up with financial education and guidance. For this reason, I think the most important development in the market has been a mindset change from calling these propositions ‘wraps’ to using the term ‘workplace savings’ as this is something that can be more relevant and better understood by the consumer.
From my experience, engaging with employees in a wide range of financial topics and giving them the tools, information and guidance they require to fully understand their short to long-term financial needs is fundamental in improving the engagement they have with their pension scheme.
Although the breadth of guidance provided is key to ensuring the whole range of the individual’s financial needs are met, perhaps not surprisingly experience shows that the support relating specifically to pensions continues to be the most regularly accessed. Over the long term, I am confident that this can be evidenced further by the improved contribution rates we will see across the industry.
Workplace savings are very much in their infancy but I can already envisage how they will provide the adviser, employer and provider with a modern platform in which we can communicate efficiently with employees and guide them through the numerous lifecycle of events in their journey to retirement.
Andrew Taylor is senior proposition development manager of Scottish Widows
