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Save on benefit costs

Companies could save up to 20 percent of the cost of their insured benefits simply by shopping around for a better deal. With the current level of competition in the insurance market, potential savings are significant, but employers are failing to take advantage of these opportunities.

Paul Ashcroft, Principal in Mercer’s Health and Benefits business, says that many organisations are not taking the opportunity to conduct a simple market comparison before signing up for renewals on their insured risk benefits, such as medical insurance.

He adds: “Employers should take advantage of the genuine year-on-year cost savings that can be made with little effort and without the need to change their current benefit provision. In cases we’ve observed this year, some companies have saved over £250,000 by making a simple switch.”

Research by Mercer has shown that the most common two reasons employers give for not shopping around are that they reviewed the benefits last year or that they do not have the internal resources to commit to a benefit review.

Benefits such as private medical insurance, group income protection and group life assurance incur the most significant insured benefit costs. But many companies have other, smaller costs that can be reviewed, including dental insurance, health screening, employee assistance programmes and business travel insurance.

“The real impact of reviewing benefits is achieved by including all costs from across the business, not just those that sit within a single department”, adds Paul. “It is by leveraging the buying power of an organisation’s full expenditure that the greatest savings can be achieved.”

The results of Mercer’s 2009 global Employee Choice in Benefits Survey provide a fascinating snapshot of how today’s employers are structuring their benefits packages.

 Find out more

Higher rate tax relief restrictions ‘a smash and grab’

Mercer believes that proposals to restrict higher rate tax relief are “a smash and grab” raid on pension schemes. They pay little regard to the interests of ordinary scheme members or trustees’ responsibilities to ensure the security of those members’ benefits.

Mercer says that Her Majesty’s Revenue & Customs (HMRC) proposals are extremely complex and that HMRC appears to have significantly underestimated the cost to employers and pension schemes of implementing its proposals.

Mercer is also concerned that HMRC has developed its proposals without any understanding of how pension schemes work in practice, or how high earners and their employers are likely to react to complex and extremely penal tax legislation.

Deborah Cooper, Head of Mercer’s Retirement Resource Group, explains: “We completely support the government’s aim to provide a tax system that is fair, affordable and sustainable, but these proposals are contrary to all of those aims. Different people with similar rates of income will suffer significantly different tax rates, just because of the way their remuneration is structured.

Some will incur marginal tax rates of over 100 percent but might be unable to plan for this, because eligibility for the new tax charges can only be assessed after the end of the tax year.”

Find out more about how high earners will be affected by the new tax rules in Foresight on high earners.

Call to reduce compensation payments

Mercer believes that the Pension Protection Fund (PPF) should consult on when and in what circumstances it would end its practice of automatically increasing compensation payments.

Mercer also believes that the PPF should consider asking the Secretary of State for Work and Pensions to reduce compensation payments to help ease the pressure on the UK’s defined benefit pension schemes.

2010/11 will be the last year covered by the PPF’s three-year commitment to keep the total levy collected stable, Mercer says. The firm expects the PPF to address this in its autumn consultation on the 2011/12 levy.

The PPF also plans to amend the levy formula to address investment risk, so employers and trustees have no certainty about how their exposure to the levy could develop over the long term.

According to Deborah Cooper, Head of Mercer’s Retirement Resource Group, the PPF’s accounts suggest that it has a large funding deficit. She explains: “For uncapped levy payers, larger increases are possible after 2010 to help fill this hole. While the PPF plays an undeniably positive role, we believe that as much consideration should be given to schemes that pay the levy as is given to scheme members that receive PPF compensation. Schemes need a break.”

Access more details on these and other news stories at Mercer's Press Release listings.