Posts filed under 'Employee Benefits'
What will this year’s Budget day be remembered for?
It’s Budget day in the UK and George Osborne was on his feet at 12.30pm to tell us how badly he has done this year and how he plans to do worse than he had previously forecast next year. At least he managed to avoid raiding the pensions piggy bank yet again, unfortunately much damage has already been done to pensions in previous Budgets and statements, and nothing has been done to reverse the trend. However, this will be a budget more remembered for the fact the Evening Standard managed to publish its front page leaking it before the Chancellor rose to his feet, rather than for its content. When the headline on the Budget in the Evening Standard is about a 1p drop in tax on beer, you know the Chancellor is struggling.
When the headline on the Budget in the Evening Standard is about a 1p drop in tax on beer, you know the Chancellor is struggling
Little changes in the field of employee benefits. The Pensions Regulator is given a new statutory duty to consider the growth prospect of employers when considering the amount they should pay to their defined benefit occupational pension schemes. The precise wording of this new duty will not be revealed until later in the year.
More spin than substance, as the Pensions Regulator will tell you it already takes into account the ability of a sponsoring employer to pay. I suspect the new Regulator duty will be more about affordability for struggling employers than “growth”. But “growth” sounds better on the telly. The Budget announcement also says the Pensions Regulator will be reviewing its code of practice on scheme funding. I wonder whether they were aware of this before today. Reviewing does not, of course, mean changing.
In his Autumn Statement (made in December) the Chancellor had announced a consultation into smoothing in pension fund valuations to aid employers under pressure. The Pensions Regulator had already rejected this idea the previous April and when the Department of Work and Pensions, with very little enthusiasm, published a call for evidence, the idea was unsurprisingly largely criticised by the pensions industry.
So, having got a cheer in the Autumn Statement, the Chancellor quietly dropped the idea without actually mentioning the fact in his Budget speech. It might have helped had he canvassed the opinion of the Pensions Regulator and the Pensions Industry before he made his Statement. Although not actually in his speech to Parliament, a new idea in the budget papers is for the Government to consult on whether pension schemes should be allowed to invest in unused commercial properties being converted into residential properties. What this actually means and whether this idea will actually get off the ground remains to be seen.
With some help for those who had pre-1992 annuities from Equitable Life and the single tier pension being brought forward a year (which had already been announced) the changes for pensions were indeed small beer. The £144 a week single tier pension was inevitable if automatic enrolment was to work, and bringing it forward by a year, together with the abolition of contracting out for defined benefit pension schemes, actually means the Government will be better off to the tune of several million pounds.
The Chancellor, ever the consummate politician and actor, spent an hour on his feet floating like a butterfly. The trouble is he apparently stings like one too!
Fraser Smart
Managing Director, Europe
Buck Consultants
The postings on this site are my own and don’t necessarily represent Buck’s positions, strategies or opinions.
Guess who I met on the bus
Speaking at the Liberal Democrat Party conference in Brighton recently, Deputy Prime Minister Nick Clegg has called for benefits for wealthy pensioners to be reconsidered after 2015. Taxpayer-funded benefits such as free television licences, winter fuel payments and free bus passes could be taken away as they are becoming “very difficult to explain”. Nick Clegg said: “My own view is for the future that it would be very difficult to explain – and it would be quite interesting if you could ask the Labour Party this, because they appear to be saying that at a time when people’s housing benefit is being cut, we should protect Alan Sugar’s free bus pass.” Quite why he picked on Mr Sugar is unclear.
Baron Sugar is a highly successful and popular British business magnate, media personality, and political advisor. From humble origins in the East End of London, Mr Sugar now has an estimated fortune of £770m. The odds of catching Mr Sugar on the 167 from his home in Chigwell to Ilford are only slightly higher than the odds on Mr Clegg winning the next General Election. Mr Sugar has been quick to call Mr Clegg “an idiot” and to make it clear that he does not have a bus pass (and presumably was not intending to apply for one any time soon). Mr Sugar also quite rightly points out that he and his companies have paid hundreds of millions of pounds in tax in the last 45 years and asks what Mr Clegg has done.
Mr Clegg the MP for Sheffield Hallam has told the BBC that his party is looking at removing all age-related universal benefits from pensioners with assets of more than £1m. Sheffield Hallam is the only seat in South Yorkshire which is not held by, and never has been won by, Labour. It is the most affluent constituency outside of the south-east of England, with almost 12% of residents earning over £60,000 a year; the 11th wealthiest of over 600 UK constituencies, and more affluent than much of the south-east. The 2001 Census showed Hallam to have the highest number of people classified as professionals of any of the UK constituencies. Mr Clegg is going to have to be careful if Mr Sugar’s catchphrase “You’re fired” is not going to apply to him when the good folk of Sheffield Hallam next go to the polls.
One such pensioner with assets over £1m is likely in due course to be John Bercow the Conservative MP for Buckingham who became Speaker of the House of Commons in June 2009.
As Speaker of the House of Commons he is paid £141,504p.a. The minimum pay for an MP is only £65,738p.a. There is a good case for saying MPs are not overpaid (and may indeed be underpaid) for the responsibility they have and the long hours they work, and indeed many of them could have found higher paid jobs outside Parliament.
The Speaker of the House of Commons benefits from unusual pension arrangements by which from his first day in office he is entitled to a pension equal to one half of his final salary when the leave that office, regardless of age or length of service. The provisions were originally justified on the grounds that it would not be dignified for the Speaker to have to seek employment after leaving office. However The Speaker is invariably a long serving member of the Commons and by convention is not opposed at elections by the major political parties. He or she is therefore sure to be entitled to an adequate pension from the normal gold plated pension scheme available to MPs. It was therefore widely expected that following the example of the Prime Minister and Lord Chancellor, who were equally entitled to unusual out-dated pension benefits, he would waive the rights to this historic anomaly and take the normal gold plated pension all the other MPs get. After all, as the Prime Minister has told us, we are all in this recession together and we will all be tightening our belts.
Instead Mr Bercow has announced that he will take the full pension when he reaches 65. The pension is index linked and involves no contributions by Mr Bercow. A Government source is quoted as saying “If the Speaker wanted a pension like this in the private sector he would need a pension pot of £1m”. The Speaker’s pension is of course not funded for and will have to be paid at the expense of the taxpayer.
Good luck Mr Clegg in persuading Mr Bercow to give up his bus pass (and his pension).
Fraser Smart
Managing Director, Europe
Buck Consultants
The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
The caring society
The recent Paralympics games in London have been hailed as the most successful in history. In every arena we witnessed amazing feats of skill and determination from athletes determined not to let their disability hold them back. Athletes such as David Weir became household names. Research showed 8 out of 10 UK adults said the Paralympics in 2012 has had a positive impact of the way disabled people are viewed by the public.
Yet only last week the newspapers ran the story of a former Paralympics Team GB member who had his disability allowance removed because he could walk in a “reasonable manner” with his prosthetic leg.
And it’s not just those on disability benefits who have seen their benefits disappear, the Government has initiated widespread changes to welfare benefits aimed at getting large numbers of people who are currently receiving sickness benefits into some form of productive work. Since January 2011, incapacity benefit has been replaced by “employment and support allowance” (ESA). Rather than just having to show a general unfitness to work as was the case with the previous incapacity benefit, potential claimants must now go through an assessment programme designed to establish what they are capable of doing, as distinct from what they cannot do. Thus, the fact that someone is not able to do their current job will not mean that they can claim benefit if it is shown that they can take on alternative employment.
The new arrangements have resulted in large numbers of people losing benefits. According to the Department of Work and Pensions, in the first year of operation 37% of people who applied for ESA having previously been in receipt of incapacity benefit, had their claim rejected. Furthermore, even if the application for ESA is successful, only the most severely disabled will qualify for ESA through to State Pension age. Most will be allowed ESA for no more than a year, after which they can apply for ESA on a means-tested basis. For example anyone with savings above £16,000 will not qualify for continued ESA.
Some of these people who have lost incapacity benefit will be sustained by payments from an Income Protection insurance scheme provided at their own cost or, more likely, by their employer. Employers should be aware, however, that most Group Income Protection insurance policies deduct the value of ESA from the benefits that they pay out. Unless the employer takes steps to change it, this situation will continue, even if the new circumstances mean that an employee no longer qualifies for State sickness benefit.
It is too early to know with any certainty how the new system will work in practice. Unsuccessful applicants have been appealing in great numbers – 8,000 a month according to official figures – and the appeal success rate is currently around 40%. Nevertheless, there is no doubting the Government’s intention to restrict long term sickness benefit to only the most severely disabled. Employers would do well to keep a close watch on developments and give consideration as to whether their GIP scheme is still fit for its intended purpose.
There are no doubt some people claiming incapacity benefit when they should not be doing so. There are always some people willing to work the system. I do not believe it is anything close to 37% of those applying for benefits. The reduction in benefits seems more motivated by money rather than the desire to help those most in need in society. Those of us fortunate enough not to be sick or disabled should take great care in protecting those less fortunate than ourselves. We should not take the risk that benefits are taken away from someone who needs them in order to force someone who does not back to work. Please check your Group Income Protection policy to ensure your employees do not suffer should misfortune strike them. Deep down most people do care, and you never know the next person who needs help may be you.
Fraser Smart
Managing Director, Europe
Buck Consultants
The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
As pharmacy benefit manager (PBM) providers continue on the path of consolidation that began around 2007, they’re creating a buyer’s market for their services. For a PBM to generate more revenue now, it will need to take business away from its competitors, or absorb them. This creates significant savings opportunities even for smaller employers, opportunities that weren’t realistic even 3 years ago. Part 3 of our series on pharmacy benefits plan management continues with a look at the strategies employers can use to negotiate better deals.
Just 3 years ago, there were few opportunities for employers with 10,000 or fewer covered lives to negotiate with the PBMs. Today, the intense competition among the PBMs for employer business has opened up the possibilities to these employers to strike better arrangements. Competitive bidding by, and follow-on negotiations with, PBMs have enabled larger emploeyrs to achieve even greater savings that before. As a result, virtually all financial and non-financial terms are negotiable.
Strategic decisions that impact PBM pricing include:
- The choice of retail network: As long as member access isn’t compromised, employers have an opportunity to achieve additional price savings by moving to a narrower network.
- Managing the appropriate drug channel: Acute, maintenance, and specialty drugs need to be dispensed through the appropriate channel — retail, mail order, or specialty pharmacy — to achieve optimal pricing and savings.
- Designing the right cost-share structure for the plan: PBM pricing is directly related to a plan’s member cost-share structure. The best pricing can be achieved with a three-tier cost-share structure that has appropriate cost-share differentials between retail and mail order generic, formulary brand and non-formulary brand drugs.
The caveat to this is that, in negotiating with PBMs, you’ll need resources who have a deep understanding of the economics of the PBM marketplace, how they make money, the nuanced language that is contained in their contracts with employers, and pricing benchmarks for employers of comparable size and in the same industry. For example, some PBMs offer high-dollar guaranteed rebates (e.g., $20 guaranteed rebate per brand drug dispensed at retail and $60 or more at mail order). However, in the fine print, the PBM may state that such high-dollar guaranteed rebates assume the plan will have an average days’ supply at retail of 30 and 90 at mail order. If the average days’ supply is less than these levels, the guaranteed dollar rebates would be prorated downward. In reality, these are impossible thresholds to meet. Such “stealth” pricing terms need to be identified and eliminated from a PBM’s pricing offer for employers to achieve optimal contract savings.
Next: Part 4: Specialty drugs, the new major cost driver of pharmacy benefit plans
I am a Principal and the National Pharmacy Practice Co-Leader. The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
No limits on Cancer Treatments
AXA PPP members will no longer have to accept time limits on benefit for licensed cancer drugs. As a standard default, AXA previously applied a limit of one year.
Bupa, the market leader, has always adopted a policy of not time limiting benefit for cancer drugs and Aviva, third largest in the market, recently announced a similar policy having previously had time limits much the same as AXA.
AXA has improved what it is offering to cancer patients in other areas too. They will not now put a time limit on benefit for follow up consultations where a member is not having active treatment. They will also ignore any consultations for cancer should the member’s policy have a general limit on out-patient benefit; something that has also now been extended to include heart surgery patients. In addition, benefit for hospice care and for wigs and other such appliances that cancer patients may need, has been improved.
Despite the economic climate, limits on cancer treatment are not a popular way of controlling costs and the changes are to be warmly welcomed.
I am the Managing Director of Buck UK’s Health and Productivity Practice. The opinions expressed here are my own, and do not necessarily represent Buck’s positions, strategies, or ideas.
In a world where we have seen concord and the space shuttle consigned to history, not because they are not wonders of their age or are obsolete but because of the cost associated with maintaining them, I hope robotics surgery does not go down the same path.
Robotics surgery signals the latest generation in surgical techniques, but it is expensive. The most frequently used “Da Vinci” system (named after the man who is said to have created the first robot) costs over £1m.
It is only available in a small number of private hospitals but it does not go on holiday or go on strike over its pension.
It is still controlled by a surgeon but, because unlike a human hand its tiny robotic hands and wrists have no tremor, it can perform at a level of detail 10 times better than a human hand. Although the process is new, it does appear patients recover quicker and, that the surgical outcomes in the long term are also better.
It is to be hoped that the cost of such machines falls so that it is a viable option for the National Health Service in the future. Who knows, future generations may view as barbaric the idea of a human being conducting an operation. It may seem to us as unlikely as it seemed to our great grandparents that one day a man would walk on the moon.
Why don’t employees save for retirement?
It’s a question many employers ask themselves. Findings from initial research by Buck Consultants, through its think tank Financial Frontiers, turned up 5 attitudes and beliefs at the root of the problem. We are pleased to report Pensions World has been given a sneak preview and there are a few surprises. Here are the highlights:
- I may die tomorrow
Contrary to all health statistics, people are caught up in a morbid grip of fatalism. Statistically, we know that the average citizen is due to live to 80. Cambridge University geneticist and researcher, Dr Aubrey de Grey claims that the first person to live to 1000 has already been born. Yet, feedback from Financial Frontiers research shows a belief system that discourages retirement savings.
- Work ‘till I die
A second stream of thought is that people will be able to work until they die. The reality is that this is just not going to be possible. Many will need to sell their homes to meet the bare minimum of care in their old age. Entire professions will not be able to maintain their livelihood due to the preciseness of their skills, the need for manual labour, or due to the sensitivity of the task.
- Someone will look after me
There is a strong paternalistic streak in people’s worldview. The blue-collar workforce still believes in a job for life. Young, well educated and highly paid employees believe that the government will look after them financially. The belief was almost religious. The overall message was “something will happen and it will all work out”.
- Can’t save, won’t save
After evaluating the research, there was a growing question: is lack of savings due to the high cost of living or other priorities? A 45-year-old research participant said, “I say bugger it, live for today”. The focus appears to be on enjoying the moment rather than worrying about the future. Holidays, a car, electronics and clothes were seen to be more important than retirement savings.
- Can’t do the math
Overall, people who had taken a look at their finances decided that saving for retirement fell in the “too hard bucket”. They don’t save in percentages, but rather put away small amounts of money whenever they can. They do not understand compounding, either on their salary or on the interest on capital. They find it difficult to compute what needs to go into the pot and what is likely to come out.
People invest their money in things they believe they understand. Mortgages and property together topped the list of savings vehicles. Current and savings accounts came next. New tax-free savings accounts have gained traction with savers as investment vehicles. Finally, even credit cards showed up on the list of savings vehicles, but not a word on pensions.
Buck’s research suggests key barriers to retirement savings are behavioural. The research has explored how people in the study have made positive financial decisions outside of the workspace and these have a direct impact on how employers can encourage retirement savings. There is a growing belief that employers are at the start of employees’ journey in making sensible decisions around their finances and retirement savings behaviour.
For a full review of the research, download “How to overcome employee apathy over retirement savings”.
If you’re not saving for your retirement, what’s your reason?
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