With the disappearance of final salary pensions, company pension plans are no longer considered a key benefit for employees. The focus has shifted to other employee benefits, particularly flexible benefits as a way to attract and retain employees. And now the Corporate Wrap is being hailed as the ‘next big thing’
However, there are differing views on the subject, including ‘pros and cons’, and only a handful of players on the market so far with more to follow and further development to come. So what is corporate wrap?
Some would argue that a more accurate description would be a ‘corporate platform’. The word ‘wrap’ is taken from the IFA market, but the key differentiators are the advisory area and that the corporate wrap focuses on workplace benefits rather than retail. It has a suite of product wrappers that may include a CD pension, group SIPP, possibly a retail SIPP, ISA, stock savings, and SAYE with the ability to transfer between wrappers, and should be extended further to include protection, healthcare, and flexible benefits. This will allow employees to make the most of their benefits, presented in a clear and concise format, encouraging them to take action and control their wealth and engage more with their employer. Eventually, one would review the ability to transfer inherited pensions, savings, and even debt, thus providing a complete overview of an employee’s financial situation.
Where are we now?
Scottish Widows entered the market early last year with its ‘mymoneyworks’ platform comprising a pension, ISA and cash savings options where employees can make use of the platform even if they do not accept the pension. It has a “reality check” where employees can analyze their financial health and priorities are highlighted as high, medium or low risk. There are tools and calculators to check income and expenses and identify where employees could free up money to save, etc. Financial information in relation to the products is also available and employees are directed to Scottish Widows advisers or an IFA for more complex matters.
HSBC has launched Workplace Retirement Services, while more players in the provider market will follow suit. Standard Life bought online benefits provider Vebnet, Threesixty and software firm Focus Solutions. Friends Provident has partnered with technology provider FNZ and Axa, Aviva and Zurich have all expressed their intention to join the group.
Hargreaves Lansdown has launched its corporate Vantage wrapper where employees can contribute through payroll into a selection of ISAs, pensions and funds and stocks. It also offers calculators and expert information on funds, stocks, and other financial topics.
A number of employee benefits consultants will also follow, although some appear to be better placed than others. For example, Jardine Lloyd Thompson has Benpal, its flexible benefits platform; NPI SIPP that he acquired; IIMIA fund manager; and has a key market share for its Profund pension management software. So Jardine Lloyd Thompson has the key “nuts and bolts”, so to speak, and it will be interesting to see his developments.
There is also debate about whether vendors or benefits consultants are best suited to develop and market corporate wrap. The key areas to consider are whether a company has the technology, the funds under management, and the capital to invest. And why spend the money if someone else has a solution for you?
Pros and cons
The general feeling is that corporate packaging is the future of how the employer will package benefits to employees. It still has its critics though, and here are the ‘pros and cons’.
advantage
There is a maximum benefit for the employer in terms of hiring employees. Flexible benefits are a once-a-year option, while with the wrapper information can be accessed daily and portfolios can be monitored and adjusted as needed.
It will educate low to middle income individuals who do not have access to a financial advisor. It will help them gain an overview of their financial situation and guide them through managing their finances, in the hope of turning the indebted into savers and eventually the IFA clients of the future.
People are encouraged to save: They can use the tools and calculators to see how they can get where they want to be, whether it’s paying off debt or saving for a new car.
Money can be easily transferred. Maturing shares can be transferred to an ISA.
There is flexibility for the employee. DC employer pension contributions could go into an ISA instead, perfect for the person who wants to save for a deposit or high-income earners affected by tax restrictions on pensions.
For the employer, it becomes easier to recruit and retain staff, and since the corporate wrapper is governed by the rules of the contract-based scheme, the provider will take care of administration and delivery.
Financial education in the workplace should be an important part. This should be delivered to the employees in the form of seminars and one-on-one meetings and will be highly beneficial.
Cons
Some employees may be uncomfortable with their employer having access to their financial information
The concept will only work if the financial education is correct, the tools are available and the information is clear and concise.
Will there be true independence or will vendors ‘push’ their own products? This could be avoided by charging for the full pension and package instead of the individual products, but will that be enough?
Will it be easy to move data from one corporate wrapper to another?
What happens if the employer wants to change the pension?
Could there be some areas of conflict with the interests of the employer? For example, accumulate shares of the company that expire in a SIPP. The employer would also want to keep the focus on employer benefits as opposed to previous pensions and outside products.
One thing is for sure: corporate wraps are here and looking to be the future of employee benefits. It will be interesting to see how they develop, how they will co-exist with personal accounts, and whether, over time, they will be accessible to both smaller employers and the larger market.
What is your point of view?