Can “one size fits all” work in the Employee Benefits space?

Up until fairly recently an employer offering a healthcare benefit would select a medical aid scheme (and option) and direct all eligible employees to join the selected option. Nowadays employees have wider benefit choices. An employer allows its employees to select from (in some cases) a number of medical aid schemes, as well as any option of the preferred scheme.

The abundant choice stems from the fact many employees are remunerated on a "cost to company” basis. Medical scheme subsidies have been reduced or done away with and tax laws have shifted the responsibility for medical aid contributions from the employer to the employee/member. The tax deductibility regime for such contributions is wholly different to a decade ago!

An additional "driver” of this flexible situation is that more and more employers are accepting responsibility for the employee, and not the employee’s family. The current situation probably affords the employee adequate flexibility. Each employee is able to select the appropriate medical aid scheme and option to best suit their budget, family size and family health situation.

Pension fund benefits are probably the least flexible of "employee benefits”. Why? Firstly, they require "compulsory” participation, and secondly, because all fund members participate in the same level of contribution (percentage of salary) as well as the same percentage of life/disability cover. There are some funds which allow variances of these two criteria, but for the most part funds remain inflexible.

Many of the risk benefits available in the market today – although offering broader cover than before – are rated on a "one size fits all” basis. One example is that the "medical aid premium waiver” benefit, often included in Income Disability benefits, requires that all members contribute regardless of whether the contributing members are the principal member of the employers’ selected medical aid scheme.

Another is that the Education benefit often added to the Group Life benefit requires all participants to contribute, yet not all participants have children, let alone children who attend private schools. Although the risk benefits are offered with more options, these options are typically compulsory for all participating members, whether they qualify for benefits or not.

There are risk benefits that offer some degree of customisation. An example is where the insurer includes "flex” benefits as an extension to Group Life cover. This extension allows the participant the option of selecting extra life cover applicable to their personal situation.

If an employer employs between 10 and 50 employees, various product houses offer individual "retirement annuity” options as opposed to the traditional pension fund option. These products make it easier for an employee who may wish to move from the employer who arranged the facility.

The ability to offer employee benefits of a totally flexible nature has a cost attached. This cost is levied against the cost of benefits. Ultimately the employee is best served with the maximum benefit for the lowest cost… The question, however, is whether the trade-off between cost and benefit makes sense.

Healthcare cover should be fairly broad… Unfortunately the cost of supplying healthcare cover (in part due to the recently legislated PMBs) makes the entry level to an employee high. In the case of a pension fund, entry can be set at an affordable level. It may not be adequate to begin with, but allows entry into the system with the hope of addressing any shortfalls in subsequent years.

The bottom line is that too many employee benefits stakeholders are focusing on risk benefits rather than the primary objective of a pension fund: To provide for retirement!