Private Medical Insurance

The biggest benefit of flex as far as the finance department is concerned comes from the tax and NI savings that can be made if a flexible benefits plan is integrated with a salary sacrifice plan.

Under flexible benefits a Pension sacrifice scheme can be introduced where deductions are paid for by Fortis, which therefore reduces the tax and/or NI, allowing employees to take up the flex benefits via salary sacrifice under which employees agree to waive a certain amount of salary in return for a non-cash benefit, this reduces the employee's contractual pay, lowering the income tax and National Insurance Contributions (NIC) due from the employee and employer. The savings can be substantial for Fortis.

Take the example of pension contributions, if an employee agrees to contribute to their pension through a salary sacrifice scheme, the employer saves 12. 8% on NICs (the employee will also make a saving, which will vary by tax band. This can be a huge winner for employers, so if every employee puts in ? 100 a month to their pension scheme, Fortis will save about ? 150 a year on NICs for each employee. Assuming 500 employees participate at ? 200 a month, this will result in a ? 150,000 annual saving.

Zurich Financial Services operates a defined contribution (DC) pension plan through its flexible benefits scheme set up in April 2007. The Pension sacrifice was introduced when they closed their DB scheme with almost 100% take up. Staff in both schemes can make pension contributions through salary sacrifice, saving on tax and national insurance. They can also make a one-off payment into their DC scheme each year, for example, to pay in a corporate bonus. (9) Private Medical Insurance The inclusion of PMI as a core benefit within Flex is likely to be a cost neutral exercise.

Options Fortis Bank provides Private Medical to all employees fully funded upto Family cover. For inclusion in flex the existing arrangement can continue. , As this is a taxable benefit, employees may decline to have cover, however they should not receive the value of their entitlement as cash. In this way the provider will be satisfied that it will not be selected against and there is an increased likelihood that pre-flex rates can be maintained. This structure would maintain the current structure that exists for this benefit and would not introduce any new flexibility for PMI.

HBOS flexible benefits scheme was introduce in 2003 with over 30,000 employees participants. Private Medical is one of the many benefits they offer employees. (10) Life Assurance Options • Introduce flexibility. • Provide funding which matches current cover. Life Assurance is currently provided at a level of 4 x salary for all employees. A typical Flex structure for Life Assurance would be to have a core (i. e. compulsory) level of cover of 1 x or 2 x salary in place for all employees.

In addition, employees would have the ability to increase their cover in multiples of 1x up to a maximum of 10x. A core rate is needed to ensure competitive Flex rates above this core level can be quoted by an insurer. Financial consultancy firm, KPMG UK, has 16 options in its flexible benefits scheme, but the most popular is life assurance, followed by the pension and medical insurance. KPMG's Annual satisfaction survey for 2007 revealed that 72% of staff believe the benefits package fits their needs. This represents an increase of four percentage points on 2006.

(10) Income Protection Fortis Bank could fund a core level of benefit for all employees (for example 40% of salary), who would then be able to flex up to a higher level of benefit (to a maximum of 75% of salary less state incapacity benefit) at their own cost. Voluntary Benefits Voluntary flexible benefits can be added to the scheme to increase the range of benefits available, without a large impact on the employer’s costs. A voluntary benefit is hosted by the employer but voluntarily paid by the employee from salary. Voluntary benefits include: • Discounted shopping

• Discounted holidays • Travel insurance • Sacrifice Scheme, i. e Childcare Vouchers, Cycle Scheme. Some 49% of employers with more than 5,000 staff are adopting a voluntary benefits programme and the offering is most popular among private sector employers (34%). (11) Lloyds TSB won the Employee Benefits Award I 2009 for having the most effective use of a voluntary benefits plan (12). The scheme had more than 1,500 discount offers up from just 110 before on many products and services, it was introduced to engage specific staff group such as those under the age of 30.