Understanding your global benefit options: Part one Understanding your global benefit options: Part one

Understanding your global benefit options: Part one
30 Sep 2017

Multinational employers are starting to understand that, even though employee benefits in all countries must meet local market legislation and practice, there are potential opportunities to create more global consistency and value across borders. The first of this two-part series explores possible options and highlights key differences in approach between Europe, Asia and the Americas.

Risk benefits

Risk benefits typically include group life, income protection, workers’ compensation and critical illness cover. In some more immature markets such as Africa, they can form an important part of the benefits portfolio for worker protection and may even extend to paying for funeral costs. When looked at globally, group life cover in particular tends to be quite consistent and generally pays out multiples of between two and four times annual earnings.

But further value can be obtained by means of multinational pooling, which usually proves beneficial if you operate in five or more markets and employ more than 1,000 staff in each. It is based on a pooling network that provides cover in each market. At the end of the year, both the premiums and claims are calculated and any profits are returned to the employer after expenses have been taken out.

The more markets you work in, the more beneficial it is likely to be to use more than one network in order to ensure admin quality is maintained in each local market. Another benefit of working with multiple networks is ensuring you obtain cover in markets where it has traditionally been more difficult to find it due to local instability.

It may also make sense for larger multinationals to use a so-called ‘captive’. Rather than taking out insurance, this approach sees employers setting up their own insurance company and using pooling networks to provide administration and claims payment.

The advantages are that multinationals can benefit from their own sheer size and scale, and costs are often more stable as the death or disability of a given individual is less likely to effect the total claims made across borders in any one year. The captive can also cover risks beyond just employee benefits.

Pensions

The majority of multinationals set up defined contribution pension schemes in most markets, although they are no longer a mandatory employee benefit in any country in the world. Requirements and contribution levels will be based on local market practice and, most importantly, on what benefits are available from the domestic government.

So, for instance, while it is less common to see pension plans in Singapore due to the low level of benefits provided by the Central Provident Fund, contribution rates in the UK are often around 10%. In European countries with high levels of state benefits, contributions to private schemes may be as low as 2-4%.

In the US, 401k retirement savings plans are the most usual option, at least for new employees. These are qualified employer-established plans, to which staff can make salary deferral contributions on a pre- or post-tax basis and employers can opt to make matching or non-elective contributions.

However, cross-border plans are still rare and are mainly offered by large organisations. This is because, in Asia, for example, pensions are less likely to be viewed as a valuable and substantial benefit that can be used for employee engagement and talent management purposes – although the opposite is true in a country like the UK. Attitudes towards cross-border plans are changing though as a result of the ageing workforce and the co-existence of multiple generations, which are starting to influence opinion.

Moreover, many forward-thinking organisations are investing time in considering how to encourage staff to take responsibility for their own retirement situation. Over the next five years, cross-border technology such as robo-advice is likely to emerge to help employees here.

But a key focus of many global benefits management teams these days is on how to manage the risk posed by old defined benefit arrangements. In many cases, such activity involves closing the schemes to new entrants and exploring ways to mitigate any excessive impact on the profit and loss and balance sheet as they wind such plans down.

In more mature markets, third party or in-house captive insurers are now increasingly being used by employers as a means of handling the risk associated with meeting the pension promise of their closed defined benefit plans - and this trend is only expected to increase.

A final consideration is that it is notoriously difficult to compare ultimate benefit levels with contribution levels on a cross-border basis. This is because the ultimate benefit will depend on the investment return, local market inflation rates and how the local market regulates tax efficiency, typically, by offering tax relief on contributions or investment returns. The tax-effectiveness of benefit pay-outs also has a role to play.

Healthcare

Due to the limited nature of state healthcare provision and escalating medical treatment fees, cost control is a significant issue in the US and Asia. As a result, these markets play a leading role in working to prevent chronic conditions rather than simply providing medical insurance cover.

Insurance policies here need to cover a range of different areas including inpatient (overnight or longer treatment in hospital) and outpatient (general practitioner and specialist) care, how to handle pre-existing medical conditions and manage chronic conditions.

In Asia, employers usually offer outpatient cover if there is no state system of provision. This cover typically takes the form of a flexible or medical spending account, which caps spend-per-employee or per family on an annual basis. Hospital treatment requiring surgery or overnight stays is generally insured and dovetails, or integrates in, with any state benefits.

In the UK, outpatient treatment is usually provided free-of-charge by the state, with insurance only covering specialist consultations.

Large multinationals can again use pooling and in-house captives for healthcare benefit provision, but it is less common than employing a group risk approach due to concerns over medical inflation rates and an inability to make sustainable profits or surpluses. Bear in mind that contracts in some countries in Asia and the Middle East do need to be written locally though.

Most multinationals also offer some form of overall global medical plan for certain categories of staff. In some instances, it is only executives who are covered, while in others, expatriates and transient staff members who move frequently across borders may benefit too. In markets where it is difficult to find coverage for non-local staff, organisations extend it here as well.

On a final note, some global healthcare insurance vendors also offer centralised Employee Assistance Programmes.

Other perks

Outside of the primary areas of risk, that is retirement and healthcare, other key areas that may be covered by some form of global benefits policy are flexible working, maternity, paternity and annual leave as well as company vehicles.

In the case of the first three, most multinational employers are starting to set global minimums to ensure consistent offerings for employees around the world. This minimum typically comprises a combination of state provision and a local benefit offered over and above state provision.

As for car policies, most employers tend not to offer vehicles these days, except for essential business requirements and to help with talent retention in relation to senior executives. In areas such as Indonesia, Thailand and Africa where driving is notoriously difficult, the focus will be on providing pooled cars, chauffeurs and second cars instead.

Defining and managing other perks is often left to local markets, although some form of cost control or approvals process is usually put in place to ensure benefits are in line with market and employee needs and are consistent with the values of the business.

However, most multinationals are also investing in controlling incremental cost creep and inequity between staff, especially in markets with high levels of inflation.

Finally, there are embryonic signs that organisations are starting to introduce a system of global voluntary benefits. These schemes typically enable workers to gain discounts as a result of the company’s purchasing power on a cross-border basis. Vendors in this space often specialise in either insurance, retail discounts or both, and their offerings are frequently integrated into recognition schemes. This situation tends to blur the line between ‘benefits’ and ‘rewards’ in a more general sense.

Marcus Underhill is director of engagement and insights at employee benefits specialist, Staffcare. Prior to joining the company, he was global head of pensions and benefits for Standard Chartered Bank based in Singapore.

Multinational employers are starting to understand that, even though employee benefits in all countries must meet local market legislation and practice, there are potential opportunities to create more global consistency and value across borders. The first of this two-part series explores possible options and highlights key differences in approach between Europe, Asia and the Americas.

Risk benefits

Risk benefits typically include group life, income protection, workers’ compensation and critical illness cover. In some more immature markets such as Africa, they can form an important part of the benefits portfolio for worker protection and may even extend to paying for funeral costs. When looked at globally, group life cover in particular tends to be quite consistent and generally pays out multiples of between two and four times annual earnings.

But further value can be obtained by means of multinational pooling, which usually proves beneficial if you operate in five or more markets and employ more than 1,000 staff in each. It is based on a pooling network that provides cover in each market. At the end of the year, both the premiums and claims are calculated and any profits are returned to the employer after expenses have been taken out.

The more markets you work in, the more beneficial it is likely to be to use more than one network in order to ensure admin quality is maintained in each local market. Another benefit of working with multiple networks is ensuring you obtain cover in markets where it has traditionally been more difficult to find it due to local instability.

It may also make sense for larger multinationals to use a so-called ‘captive’. Rather than taking out insurance, this approach sees employers setting up their own insurance company and using pooling networks to provide administration and claims payment.

The advantages are that multinationals can benefit from their own sheer size and scale, and costs are often more stable as the death or disability of a given individual is less likely to effect the total claims made across borders in any one year. The captive can also cover risks beyond just employee benefits.

Pensions

The majority of multinationals set up defined contribution pension schemes in most markets, although they are no longer a mandatory employee benefit in any country in the world. Requirements and contribution levels will be based on local market practice and, most importantly, on what benefits are available from the domestic government.

So, for instance, while it is less common to see pension plans in Singapore due to the low level of benefits provided by the Central Provident Fund, contribution rates in the UK are often around 10%. In European countries with high levels of state benefits, contributions to private schemes may be as low as 2-4%.

In the US, 401k retirement savings plans are the most usual option, at least for new employees. These are qualified employer-established plans, to which staff can make salary deferral contributions on a pre- or post-tax basis and employers can opt to make matching or non-elective contributions.

However, cross-border plans are still rare and are mainly offered by large organisations. This is because, in Asia, for example, pensions are less likely to be viewed as a valuable and substantial benefit that can be used for employee engagement and talent management purposes – although the opposite is true in a country like the UK. Attitudes towards cross-border plans are changing though as a result of the ageing workforce and the co-existence of multiple generations, which are starting to influence opinion.

Moreover, many forward-thinking organisations are investing time in considering how to encourage staff to take responsibility for their own retirement situation. Over the next five years, cross-border technology such as robo-advice is likely to emerge to help employees here.

But a key focus of many global benefits management teams these days is on how to manage the risk posed by old defined benefit arrangements. In many cases, such activity involves closing the schemes to new entrants and exploring ways to mitigate any excessive impact on the profit and loss and balance sheet as they wind such plans down.

In more mature markets, third party or in-house captive insurers are now increasingly being used by employers as a means of handling the risk associated with meeting the pension promise of their closed defined benefit plans - and this trend is only expected to increase.

A final consideration is that it is notoriously difficult to compare ultimate benefit levels with contribution levels on a cross-border basis. This is because the ultimate benefit will depend on the investment return, local market inflation rates and how the local market regulates tax efficiency, typically, by offering tax relief on contributions or investment returns. The tax-effectiveness of benefit pay-outs also has a role to play.

Healthcare

Due to the limited nature of state healthcare provision and escalating medical treatment fees, cost control is a significant issue in the US and Asia. As a result, these markets play a leading role in working to prevent chronic conditions rather than simply providing medical insurance cover.

Insurance policies here need to cover a range of different areas including inpatient (overnight or longer treatment in hospital) and outpatient (general practitioner and specialist) care, how to handle pre-existing medical conditions and manage chronic conditions.

In Asia, employers usually offer outpatient cover if there is no state system of provision. This cover typically takes the form of a flexible or medical spending account, which caps spend-per-employee or per family on an annual basis. Hospital treatment requiring surgery or overnight stays is generally insured and dovetails, or integrates in, with any state benefits.

In the UK, outpatient treatment is usually provided free-of-charge by the state, with insurance only covering specialist consultations.

Large multinationals can again use pooling and in-house captives for healthcare benefit provision, but it is less common than employing a group risk approach due to concerns over medical inflation rates and an inability to make sustainable profits or surpluses. Bear in mind that contracts in some countries in Asia and the Middle East do need to be written locally though.

Most multinationals also offer some form of overall global medical plan for certain categories of staff. In some instances, it is only executives who are covered, while in others, expatriates and transient staff members who move frequently across borders may benefit too. In markets where it is difficult to find coverage for non-local staff, organisations extend it here as well.

On a final note, some global healthcare insurance vendors also offer centralised Employee Assistance Programmes.

Other perks

Outside of the primary areas of risk, that is retirement and healthcare, other key areas that may be covered by some form of global benefits policy are flexible working, maternity, paternity and annual leave as well as company vehicles.

In the case of the first three, most multinational employers are starting to set global minimums to ensure consistent offerings for employees around the world. This minimum typically comprises a combination of state provision and a local benefit offered over and above state provision.

As for car policies, most employers tend not to offer vehicles these days, except for essential business requirements and to help with talent retention in relation to senior executives. In areas such as Indonesia, Thailand and Africa where driving is notoriously difficult, the focus will be on providing pooled cars, chauffeurs and second cars instead.

Defining and managing other perks is often left to local markets, although some form of cost control or approvals process is usually put in place to ensure benefits are in line with market and employee needs and are consistent with the values of the business.

However, most multinationals are also investing in controlling incremental cost creep and inequity between staff, especially in markets with high levels of inflation.

Finally, there are embryonic signs that organisations are starting to introduce a system of global voluntary benefits. These schemes typically enable workers to gain discounts as a result of the company’s purchasing power on a cross-border basis. Vendors in this space often specialise in either insurance, retail discounts or both, and their offerings are frequently integrated into recognition schemes. This situation tends to blur the line between ‘benefits’ and ‘rewards’ in a more general sense.

Marcus Underhill is director of engagement and insights at employee benefits specialist, Staffcare. Prior to joining the company, he was global head of pensions and benefits for Standard Chartered Bank based in Singapore.