Keep It Simple Sunshine (KISS)

From Corporate Adviser
Geoff Ashton, Head of Retirement Practice

There is a general mistrust of financial products and those who provide them and this is reflected in attitudes to benefit provision. A key reason for this mistrust is the complexity of typical benefit programmes which increase in recent years. It is easy to blame this on history and those who created it such as legislators, employers or advisers. Over the years many benefit programmes have had “bells and whistles” added to accommodate law changes, reflect new business requirements or simply to offer more choice.

Standing back the result is a series of changes each with good intentions that when added together have lead to designs that are not understood or appreciated by the customer (i.e. the employee). This can reflect poorly on employer and the employee is not motivated or sufficiently engaged to make the right decisions for them. The increased complexity also means increased management costs which could be utilised to improve benefit levels if the design were simpler.

Employers now have an excellent opportunity to review their arrangements. From 2012 employers will have to auto enrol employees into a minimum standard pension scheme be it their own or into the new Government managed Personal Accounts. Most employer pension provision will need to be revisited in the run up to 2012 to meet the new requirements. The focus should be to identify the benefits package that the employer would adopt if it had a greenfield site and wanted to set a design that attracted, retained and motivated the people the business needs to be successful.

With a focus on the KISS principle, we believe it would be apparent that the vast majority of employee needs can be adequately and cost effectively covered with a simple design. This does not mean that employees cannot be given choice but this should be limited to where it genuinely adds value. At the extreme, an employee who wants to opt out of employer benefit provision should be allowed to do so and receive a cost neutral cash equivalent. We would still recommend that the employer considers a minimum level of core provision is maintained for those who opt out but only where it is essential from the employers’ angle.

Having identified the proposed design the employer should then consider how to transition employees from the current arrangements. This would be challenging in some respects but would be a one-off project which is likely to be paid for many times over from the on-going gains.