With the disappearance of final salary pensions, company pension plans are no longer seen as a key benefit for employees. The focus has shifted to other employee benefits, particularly flexible benefits as a way to attract and retain employees. And now the Corporate Wrap is being hailed as the ‘next big thing’

However, there are different points of view on the subject, including the ‘pros and cons’, and only a handful of players in the market so far with more to follow and more developments to make. So what is corporate wrap?

Some would argue that a more accurate description would be a “corporate platform.” The word ‘wrapper’ is taken from the IFA market, but the key differentials are the advisory area and that the corporate wrapper focuses on benefits in the workplace rather than retail. It has a suite of product wrappers that can include a DC pension, group SIPP, possibly a retail SIPP, ISA, shared savings, and SAYE with the ability to transfer between wraps, and should be extended further to include protection, healthcare, and benefits flexible. This will allow employees to make the most of their benefits, presented in a clear and concise format, encouraging them to take action and control their wealth and become more engaged with their employer. Eventually, the ability to transfer between pensions, savings, and even inherited debt would be reviewed, thus providing a complete picture of an employee’s financial situation.

Where are we now?

Scottish Widows entered the market early last year with its ‘mymoneyworks’ platform comprising a pension, ISA and cash saving options where employees can make use of the platform even if they do not accept the pension. It has a ‘reality check’ where employees can analyze their financial health and priorities are highlighted as high, medium or low risk. There are tools and calculators to check income and expenses and identify where employees could free up money to save, etc. Financial information regarding the products is also available and employees are directed to Scottish Widows advisers or an IFA for more complex matters.

HSBC has launched Workplace Retirement Services, while more players in the provider market will follow suit. Standard Life bought online benefits provider Vebnet, Threesixty and software company Focus Solutions. Friends Provident partnered with technology provider FNZ and Axa, Aviva and Zurich have all expressed their intention to join the group.

Hargreaves Lansdown has launched its Vantage corporate wrap where employees can contribute through payroll to a selection of ISA accounts, pensions and funds and stocks. It also offers calculators and expert information on funds, stocks, and other financial issues.

He is also expected to be followed by a number of employee benefits consultants, although some appear to be better placed than others. For example, Jardine Lloyd Thompson has Benpal, its flexible profit platform; NPI SIPP that you acquired; IIMIA fund manager; and has a key market share for its Profund pension management software. So Jardine Lloyd Thompson has the key ‘nuts and bolts’, so to speak, and it will be interesting to see his developments.

There is also debate about whether vendors or benefits consultants are in the best position to develop and market the corporate envelope. The key areas to consider are whether a company has the technology, the funds under management, and the capital to invest. And why waste the money if someone else has a solution for you.

Pros and cons

The general feeling is that the corporate wrap is the future of how your employer will package employee benefits. However, it still has its critics, and here are the ‘pros and cons’.

Pros

There is a maximum benefit to the employer in terms of hiring employees. Flexible benefits are an option once a year, while with the package information can be accessed daily and portfolios can be monitored and adjusted as needed.
It will educate low to middle income individuals who do not have access to a financial advisor. It will help them get an overview of their financial situation and guide them through managing their finances, hopefully turning the indebted into savers and eventually IFA clients of the future.

People are encouraged to save – they can use tools and calculators to see how they can get where they want to be, whether it’s paying off debt or saving for a new car.

Money can be easily transferred. Maturing shares can be converted to an ISA.

There is flexibility for the employee. DC employer pension contributions could go to an ISA instead, perfect for the person who wants to save for a deposit or high-income people affected by pension tax restrictions.
For the employer, it becomes easier to hire and retain staff, and as the corporate envelope falls under the rules of the contract-based scheme, the supplier will take care of administration and delivery.

Financial education in the workplace should be an important part. This should be delivered to employees in the form of individual meetings and seminars and it will be very beneficial.

Cons
Some employees may be uncomfortable with the fact that their employer has access to their financial information.
The concept will only work if the financial education is correct, the tools are available, and the information is clear and concise.

Will there be true independence or will vendors ‘push’ their own products? This could be avoided by charging the pension and the whole package instead of the individual products, but will it be enough?
Will it be easy to move data from one corporate envelope to another?
What happens if the employer wants to change the pension?

Could there be some areas of conflict with the employer’s interests? For example, converting expiring company shares into a SIPP. The employer would also want to keep the focus on employer benefits rather than past pensions and outside products.

One thing is for sure is that corporate wraps are here and looking to be the future of employee benefits. It will be interesting to see how they develop, how they will coexist alongside personal accounts, and whether they will be accessible over time to smaller employers as well as the larger market.

What is your opinion?