Pensions - Articles - Workplace benefit costs fall as more DB schemes close


Workplace benefits are costing companies less as a proportion of employee salaries according to Towers Watson’s annual Benefits HealthCheck survey of mid-sized companies*. The percentage of companies spending over 20% of employee salary costs on workplace benefits has dropped from a third in 2014 to a quarter this year, with a nearly a third (29%) of companies spending between 11-15%.

 The research found that, although companies with legacy defined benefit (DB) pension schemes still have higher costs than those operating purely defined contribution (DC) schemes, the gap has closed over the past year following further reductions in the number of companies that operate a DB pension scheme.
  
 Will Aitken, senior consultant at Towers Watson, said: “There has been a significant reduction in the average cost of benefits as a percentage of salaries, in the past year. This is mostly due to the continued trend in mid-sized companies towards DB pension plan closure and plan design changes. We expect this trend to continue as we get closer to the end of contracting-out, as more DB pension schemes start to redesign ahead of the new legislation.”
  
 The majority of those surveyed said they have a consistent strategy across their workplace benefits and that it is aligned to their business priorities. But only a minority of those organisations are able to adequately measure the success of their benefit plans. In addition, only around a third of the companies surveyed are planning to review and change their existing plans to accommodate the needs of their multi-generational workforce.
  
 Will Aitken said: “The multi-generational nature of many workforces is causing challenges for benefit design, particularly as we see a trend towards people working longer into their sixties and seventies. This can put significant pressure on the cost as well as design of benefits.”
  
 The survey also looked at the drivers of benefit design and what employers are looking to achieve from their employee benefits offering. The top priorities listed by employers are to use benefits to help retain existing employees and attract new talent, followed by staying competitive when compared to their peers and managing costs.
  
 Will Aitken said: “The main workplace benefit priorities for employers are driven by competition, either explicitly benchmarking themselves against competitors or in order to establish themselves as the employer of choice for existing and prospective employees. Managing costs is also a priority area in benefit design and it appears that companies have been successful in this area over the past 12 months as costs per employee have come down as a proportion of salary.”
  

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