Workplace benefits packages cost a fifth of salary

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LONDON, Tuesday 4 February 2014 – Over a third of mid-sized employers say their overall employee benefits package costs more than 20 per cent of salary, according to Towers Watson’s Benefits HealthCheck survey. The results also show that employers with defined benefit (DB) benefits have higher benefit costs than those with only defined contribution (DC) arrangements.

Peter Routledge, London retirement solutions managing director at Towers Watson said: “This finding raises the question of whether employers that continue to offer DB benefits are fully aware of the implications of this decision and how the associated higher costs affect the ability of the employer to remain competitive. In addition, employers with open DB plans need to ensure the additional costs are offset by increased employee appreciation and engagement.”

In terms of benefits strategies, around 60 per cent of those surveyed say that they have a consistent philosophy and strategy across their employee benefits and that it is aligned with their business needs. However, more than half do not know how effective their benefits plans are in supporting their business needs in practice. Of the companies that have metrics in place to assess the effectives of their benefits plans, few are confident that they have the right metrics in place.

Peter Routledge said: “With over half of employers saying they have reviewed one or all of their pension or benefit plans in the last year, it is clear that there is a desire to align benefits with business needs. As such, the ability to measure and monitor how well pension and benefit provision is working will be essential in ensuring that these plans remain fit for the future.”

The research, which looks at employers with either a DB or DC pension scheme, shows that for those organisations with DC arrangements, improving DC member engagement is high on the agenda.

Peter Routledge said: “There is still a significant gap in interest between new joiners of DC schemes, often through auto-enrolment, and those really paying attention and taking the necessary actions to maximise the value of future pensions and to safeguard their financial futures. This gap has to narrow quickly if employers are to get the full benefit of their benefits packages.

“Other top planned actions for the next three years are to review the investment fund choices available to employees, improve governance, and introducing annuity broking. This indicates a clear desire from employers for better outcomes and levels of understanding for their employees in DC schemes.”

For those organisations with DB plans, de-risking has been, and will continue to be, high on the agenda according to the survey. It also shows that the most common actions taken by companies so far are closures to new entrants and future accrual, while work to diversify pension schemes’ investments has also been common. The survey shows that the most popular company actions for the coming years are likely to focus on ‘second-phase’ de-risking, either via buy-in/buy-out solutions, interest-rate hedging or other liability management exercises.

Notes to editors

Towers Watson’s Benefits HealthCheck survey covers companies with between 500 and 2,000 employees.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organisations improve performance through effective people, risk and financial management. With more than 14,000 associates around the world, we offer consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management.

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