Employees with flexible benefit options need to understand the impact of their choices on themselves and their family.
Many of us enjoy flexibility in our lives. Whether this is choosing when to have our online shopping delivered, when to watch our favourite TV shows, or the hours that we work. Indeed, flexibility in the workplace has now become a top consideration for people when they search for a new job.
Employers find it increasingly difficult to use pay rises as a means to reward staff, so they are competing to find – and keep – qualified candidates by offering a range of flexible benefits instead.
Employers will usually offer ‘core’ benefits such as workplace pensions and maternity leave, and then allow their staff to layer on extra perks. These can include childcare services, share schemes, private healthcare, group insurance, shopping vouchers, gym membership and even reflexology.
If you work for an employer that runs a flexible benefits scheme, you may be given an account or ‘flex pot’ from which to purchase benefits. Alternatively, you may have to pay for some of these through a salary sacrifice arrangement; where your salary is adjusted up or down by taking fewer or more benefits. Some perks, such as private healthcare or company cars, may be treated as a ‘benefit in kind’, meaning you don’t pay for them, but you may be taxed.
Younger employees may find gym membership or travel insurance appealing, whereas working parents will find childcare vouchers or life insurance more applicable to their situation. Moreover, a flexible benefits plan that allows you to choose a level of life insurance and critical illness cover can provide a significant level of reassurance, especially if you have dependants. However, as with all insurance products, you should measure the level of cover that is being offered with the cost.
The amount paid out by a life insurance policy (typically five to ten times your annual salary) can sound like a lot of money, but it’s only when you calculate how far that money has to stretch that you realise that it might be insufficient to provide your family with real financial security. While your company’s flex scheme might allow you to buy more cover at low cost, it may fall well short of what your family would actually need to avoid your death causing significant financial hardship.
If you have young children, a sizable mortgage, or a spouse who doesn’t work, it may be appropriate to ensure that you have more cover – perhaps a lot more than ten times your salary. Furthermore, some employer benefits packages do not always give you the option to buy life insurance for your spouse; even if they do, the cover might be inadequate.
Cost is another important factor. Insurance premiums that were really competitive a few years ago do not always represent good value today. If your company’s scheme operates an age-banded price structure, the cost will rise every few years. This can make cover progressively more expensive, particularly as you enter your 40s and 50s – precisely the stage of life when your financial commitments, and hence your need for protection, are likely to be greater. In contrast, many policies available on the open market charge a fixed premium for a fixed amount of cover. In other words, you know how much the policy costs and the sum assured at the outset.
You may also find that the critical illness policy available through your company’s group scheme is limited. Some types of cancer may not be included, and to make a claim for some illnesses you need to have permanent symptoms. You may be able to insure against a wider range of conditions by looking at alternative providers, so it’s vital to check other options before making any decisions.
The protection offered through your employer may well be sufficient, but if you have any doubts you should seek financial advice to assess how to get what you need. While it’s tempting to make full use of all the perks on offer through your employer, you should weigh up how much each benefit is worth, and whether you could negotiate a better deal yourself. It could make the difference in providing you and your family with greater peace of mind.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.