MCQ
ag98
Wk_6_Employee_benefits_and_pension.pptxLearning outcomes
At the end of this workshop the learner should be able to
Debate: International Reward policies
Critically evaluate and apply employee benefits
Critically assess the two main types of workplace pensions and its advantages and disadvantages for the retiree
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International reward Presentations
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Group 1
Halez
Sidra
Jharrnaa
Shenglan
Natalie
Group 2
Pavla
Aswin
Omar
Moosa
Ashwini
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Break from 8.15pm to 8.45pm
Students can do the exercise at the back of this presentation.
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Employee benefits
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Items offered in addition to pay and bonus
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Main types of benefits
Pensions and protection
Example: Retirement pay, life insurance, disability pension
Health and personal security
Example: Health screening, occupational sick pay, private medical insurance, redundancy pay
Financial assistance
Example: Season ticket/transport loans, relocation expenses, discounts, shopping vouchers
Personal and lifestyle needs
Example: Annual leave (increased), childcare vouchers, subsidised canteen, gym membership, counselling service, enhanced maternity/paternity pay
Cars
Example: Cars, car and fuel allowances, parking
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Benefits policy
Organisations need to consider:
What to do about pensions
Why are they giving benefits
The range and scale of benefits
What the market is doing
Tax and National Insurance (NI) concessions
The degree of employee choice
Cost and perceived value
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Benefit and Cost (£ p.a.)
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| Benefit | Cost |
| Company pension | £4,500 |
| Leased car | £2,500 |
| Subsidised childcare | £1,200 |
| Medical insurance | £650 |
| Subsidised meal (50%) | £350 |
| 1 day’s leave | £150 |
| Season ticket loan | £100 |
Suitable for nurses in our NHS mini case study
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Employee pensions
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Do you know age of retirement of…
Emirates in the UAE?
Expats in the UAE?
People in the UK?
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Retirement Age UAE
The retirement age:
for Emiratis is 49
expatriate residents is 60
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Age of Retirement (UK)
https://www.gov.uk/state-pension-age
You can usually work for as long as you want to. ‘Default retirement age’ (a forced retirement age of 65) no longer exists.
An employer can insist you retire in the UK if
the job requires certain physical abilities (eg in the construction industry)
the job has an age limit set by law (e.g the fire service, age 55)
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State Pension UK
You can claim State Pension when you reach State Pension age. As of April 2021, this is 66 for men and women
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UK pension issues
An ageing population.
Insufficient employee contributions.
Stock market performance.
Age of retirement.
The decline of defined benefit (DB) pension schemes.
Pensions auto-enrolment.
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Pension type distribution
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| Defined benefit (DB) | Group personal pension | Defined Contribution (DC) | |
| Private sector | 5% | 30% | 80% |
| Public sector | 66% | 11% | 35% |
Based on 2014/5 CIPD Reward Survey
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Employee pensions
The two main types of workplace pension are:
1. Defined Benefit (DB) schemes (less common now/paid until death)
Employer funds the scheme by a variable contribution (not fixed) and employee is guaranteed a fixed benefit at the end. Look at the pension issues (slide 12) which influence how much the scheme pays out. DB schemes pay lump sum/% final or average salary linked to inflation.
2. Defined Contribution (DC) schemes (more common now/paid until money has run out)
Employer pays fixed contribution into pension scheme from salary (and employee can top up) gets a variable benefit at the end. Good for employer – less for employee as uncertain how much will pay out. Also tax relief on amount paid in. No guarantees on amount paid out.
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In Employment Contract
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An annuity rate
When you accumulate a lump sum from a DC scheme an insurer can assess how long you will live.
An annuity rate is used to calculate the amount of income that will be paid, following investment of a lump sum in an annuity.
With a guaranteed annuity rate written into your pension contract, your provider must offer that minimum annuity income to you on retirement.
https://www.investopedia.com/terms/a/annuity.asp
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Annuity pension rates are based on insurers’ forecasting of how long you will live
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Options if the DB scheme is too costly Think about Maine Bank Coursework
Close scheme for all
Close DB to new employees
Stop future DB accruals
Move from final to career average salary
Increase employee contributions
Increase retirement age
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A NEST (National Employment Savings Trust) pension
For organisations without a qualifying pension scheme
A single retirement pot of money.
Moves with you if you change jobs.
Choice of investment policy.
Relatively low administration costs.
No refunds, no withdrawals.
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Auto Enrolled pension
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Beare, P. (2018)
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UK Government’s NEST Pension
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Will it provide a generous ‘golden egg’ pension when you retire?
It is unlikely, but better than nothing.
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A pensioner in a DB or DC scheme?
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Why is she smiling?
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Mini-case study
Hospital in London
Discussing reward including pay progression for staff/up the salary scale.
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| In employment | Retirement |
| 30 years | Every year until death |
| Final pay £30,000 | Pension £11,250 |
| Employer pays 14% | (Final salary X years service / 80) |
| Employee pays 6% … | A lump sum (3/80 X service) on retirement |
| of salary into pension every year | |
| Employee contribution go to the government. Government pay pensions out of taxes. |
Public Sector: Defined Benefit (final salary scheme)
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Accrual rate
Annual amount by which the organisation builds up your pension in a DB (final salary) scheme.
Expressed usually as
1/60th (private sector) or
1/80th (public sector)
Of final salary x length of service
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| In employment | Retirement |
| 30 years | Every year until death |
| Final pay £30,000 | Pension £10,000 p.a.? |
| Employer pays 5% | |
| Employee pays 4% … | |
| of salary into pension every year. | |
| The money is specific to the individual on/his/her behalf. | And is invested |
| On retirement the money can be used as cash or to buy a pension, which depends on annuity rates |
Company pension: Defined Contribution (money purchase scheme)
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Annuity pension rates are based on insurers’ forecasting of how long you will live
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Who takes the risk of having insufficient money to pay for future pensions?
State pension and public sector DB pension
The government/tax payer
Private sector DB pension
The employer/shareholders
Private sector DC, group/ master trust pension
The employee
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Options if the DB scheme is too costly
Close scheme for all
Close DB to new employees
Stop future DB accruals
Move from final to career average salary
Increase employee contributions
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UK Government’s NEST Pension
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Will it provide a generous ‘golden egg’ pension when you retire?
It is unlikely, but better than nothing.
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A NEST (National Employment Savings Trust) pension
A single retirement pot of money.
Moves with you if you change jobs.
Choice of investment policy.
Relatively low administration costs.
No refunds.
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Organisation’s role in auto-enrolment
Time consuming
Especially for small companies
Keeping records
E.g. required for re-enrolment after 3 years
Communication
Explaining pension scheme to different groups of staff
Neutrality
Cannot encourage staff to opt out, but cannot promise the amount of their pension on retirement
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Not everyone supports these changes
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The degree of employee choice
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The degree of employee choice
Fixed benefits according to grade. No choice.
Employee discount schemes offered through company bulk buying.
Choosing benefits via salary sacrifice.
Employees buy benefits out of pre-tax pay usually, with NI and/or tax savings.
A flex fund
A ‘pot’ of money on top of salary which employees spend on benefits.
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Flex Fund
Involves employees being allocated a ‘benefit allowance’.
This ‘allowance’ represents the amount of money that the employer is prepared to spend to provide the employee with their chosen benefits.
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A flex fund
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| A flex fund | |
| Advantages | Disadvantages |
| Makes staff aware of value often via a total remuneration/reward statement | Cost is higher for the employer than a *salary sacrifice scheme. |
| Meets the needs of a diverse workforce - good for mergers and acquisitions. | Administrative costs includes updating HR information systems. |
| Staff dissatisfaction if they make the wrong choice. | |
| Staff cynicism; would like a pay rise not choice of benefits. |
*Salary sacrifice is when you agree to exchange part of your salary so you can get extra benefits from your employer. Benefits offered can include child care vouchers, a company car and additional pension contributions.
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What is the most costly benefit? Assume an employee on a salary of £32,000 (AED166,500 approx.)
Private medical insurance.
1 day’s extra annual leave.
A company pension defined benefit.
A travel to work season ticket loan.
Subsidised meals 50% subsidy.
A leased car.
Subsidised childcare 10% discount on actual cost.
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Benefit and Cost (£ p.a.)
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| Benefit | Cost |
| Company pension | £4,500 |
| Leased car | £2,500 |
| Subsidised childcare | £1,200 |
| Medical insurance | £650 |
| Subsidised meal (50%) | £350 |
| 1 day’s leave | £150 |
| Season ticket loan | £100 |
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International reward 8.45pm to 9.30pm
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Break from 8.15pm to 8.45pm
Groups can practice their presentations.
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Independent learning outcomes for week 7
MCQ Test preparation. Study the slides in MS Teams and Unihub and watch Bruce’s recap video.
Assignment 2 preparation (Maine Bank Case Study).
Homework – case study
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23 May, 2021 – 8.15pm-8.45pm and continued to Homework Exercise for Mini-case study MCQ – NHS UK
Read about the NHS in the UK
Find out pay spines suitable for nurses in a hospital in the UK
https://www.nurses.co.uk/careers-hub/nursing-pay-guide/
What is a market supplement (see next slide)?
What is market pricing? (see next slide)
What is competency related pay? (next slide)
What benefit would mostly compensate nurses in the NHS (see slide 11)?
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Recap - Market Supplement
A Market Supplement is an addition to salary for a specific post, or group of posts. It will be paid where a post(s) has been identified as 'hard to fill' and the Council is prevented from being able to recruit or retain staff on the salary determined by the Council's grading scheme.
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Recap - Market pricing
Market pricing structures are based on what other employers pay employees.
Under a market-based salary structure, conduct an external pay audit to determine your salary ranges for each position.
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Recap - Competency-based pay
This is a pay structure that compensates employees based on their skill set, knowledge, and experience rather than their job title or position.
A competency-based pay plan encourages employees to reach the pay rate that they want by taking charge of improving their skills and work. Suitable for nurses. [see uploads on MS Teams in videos to watch and articles to read]
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Chart1
| 0% | 0% | 0% |
| 1-9% | 1-9% | 1-9% |
| 10-19% | 10-19% | 10-19% |
| 20-29% | 20-29% | 20-29% |
| over 30% | over 30% | over 30% |
Sheet1
| Private Sector | Public Sector | Column1 | |
| 0% | 1 | 0 | |
| 1-9% | 29 | 13 | |
| 10-19% | 40 | 63 | |
| 20-29% | 22 | 25 | |
| over 30% | 7 | 0 | |
| To resize chart data range, drag lower right corner of range. |
0102030405060700%1-9%10-19%20-29%over 30%% of sector who payBenefits spend as % of payroll Private SectorPublic SectorCIPD SURVEY 2012
