1948 was a momentous year for Britain, and for benefits: London hosted the Olympics, the National Health Service (NHS) was founded and the Basic State Pension was introduced for the first time. In 2012, we see a somewhat different picture. While 2012 is arguably more significant, as both a Jubilee and an Olympic year, we are also at a point in time where the state and privately provided health, pension and benefits system is under pressure as never before.
Benefits in 1948 were very different to today. It was the post-Depression and post-war era where state health and pensions provision for all Britons was a challenging but essential part of the concept of the Welfare State. As a result, that vision had come to fruition by the mid-1950s and our parents and grandparents could truly rely on the state and the labour market for their jobs, health and basic pension.
However, betweem the 1960s and the 1980s, the sheer financial cost of this system had begun to bite. The state pension was able to prevent extreme poverty in retirement (in truth, this was all it was ever designed to do) but not provide income replacement, especially to medium and higher earners. The level of company and employee contributions to group and private pensions increased, and defined benefits pension schemes grew as the preferred vehicle for company retirement provision. The NHS was still the premier provider of healthcare in the UK, with only the better-off using privately funded healthcare.
The 1980s to 2000s saw huge pressures on benefits. Improved living conditions and scientific progress meant that people were living longer, significantly increasing the costs of healthcare and pensions. Life expectancy increased by 16 years for both men (from 62 to 78) and women (from 66 to 82) between 1948 and 2012. State and employer attitudes to benefits started to change in the 1980s and this was the beginning of a series of major shifts in the pensions and benefits industry. Defined benefit plans were closed in favour of defined contribution schemes, hospital waiting lists began to lengthen, while private hospitals began to grow and private health insurance developed to bring private healthcare within the grasp of more people, especially when employers funded it. In addition, a fast-growing population and spiralling levels of unemployment increased the financial burden on the state for social security, health and pensions.
By the mid-2000s onwards, the role of the state was clearly diminishing and now in 2012 employees are to be automatically enrolled into company- and employee-funded company pensions. The private medical industry has grown and become increasingly costly, funded by organisations and employees. The health service and state-funded pension both still exist, but the ability to continue to fund them at current levels is under severe pressure. The retirement age has also increased and will continue to do so.
So the benefits and pensions landscape today is a far cry from what it was in 1948. Defined benefit plans will continue to close, new auto-enrolment-compliant pension plans are coming into effect, different types of healthcare plans are emerging, and there is now – more than ever before – an immense focus from the media and the Government on healthy living, preventing, for example, obesity and alcoholism.
Responding to this, more companies have developed flexible benefits schemes, aiming to provide a range of attractive and appropriate options for employees. In 2012, 52% of UK employers had implemented flexible benefit plans, with the top three most popular flexible benefits being the ability to increase holiday, bicycles for work and childcare vouchers.
Flexible benefits plans are also expanding globally, with employee 'wealth' plans being developed and employers communicating more frequently with employees via Twitter and Facebook, helping to counterbalance financial pressures and to keep pace with changes in social behaviour.
From a corporate perspective, it is clear that flexible benefits are forming an increasingly important part of total remuneration packages for employees and their global expansion looks set to continue over the next decade. In 1942, Lord Beveridge, one of the key architects of the Welfare State, called the concept of a state pension "a British revolution". In 2012, globalisation, technology, and personal benefit funding mean we are in a similar state of radical change and metamorphosis in the UK – and indeed across the world.
Martha How (pictured) is principal consultant at HR consultancy, Aon Hewitt
|Martha How||HR magazine||21-07-2012|
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