Who Pays For Aging?

A World View of Benefits Planning

Challenges and opportunities in the global benefits space

by James Reid

Mr. Reid is Executive Vice President, Global Employee Benefits, MetLife. Visit www.metlife.com.

From large scale multinationals to small-medium enterprises, employers around the world are witnessing benefit trends which are having a lasting impact on retention and business growth. While these trends are being shaped by changes to the global socio-economic climate, they do position benefit providers to help employers navigate the future in a way that drives value for business and value for the employees being served.

The challenge

Employers are searching for guidance in three areas:
1. The war for talent
2. Managing rising health care costs
3. Helping their employees with retirement

Generally, employees around the world are concerned about financial security. According to MetLife’s Employee Benefit Trends Studies (EBTS), employees look to their employers for certainty and place a high value on benefits provided by employers for financial security, retirement, and healthcare needs [U.S. (71%), India (67%), UAE (55%), Greece (58%), UK (55%), and in Egypt (51%)]. Across the board, employees are also demanding a well-rounded approach to wellness in the workplace. Work-life balance support, preventative care, and stress management are the top offerings desired by employees in the UAE, Australia, Egypt, and the UK. Amidst all this, employers are dealing with delivering more on tighter budgets.

The war for talent

The top reason for refining benefits packages is the continuous competition for new talent and the ability to retain skilled employees. According to MetLife’s EBTS, a significant percentage of employees are hoping to work for a different employer at some point in the next year [U.A.E. (56%), India (47%), Egypt (37%), China (26%), and in Australia (25%)]. Interestingly, many of these same markets indicate that an improved benefits package would keep employees at their current company.

Benefits are an important reason why most employees choose to work for a particular employer. In 2017, 61% of UAE employees, for example, agreed this was the case. Unsurprisingly, 47% of those same employees cited that an improved benefits package would keep them at their current company – this was second only to a salary increase.

Rising cost of health care

According to Aon’s 2018 Global Medical Trends report, around the world, health care costs are rising due to, “global population aging, overall declining health, poor lifestyle habits becoming pervasive in emerging countries, continuing cost shifting from social programs, and increasing utilization of employer-sponsored plans.” The physical challenges of old age and unhealthy lifestyles in working ago people have increased the need for expensive, long-term treatments.

With no slowdown in sight, employers have to manage costs without compromising benefits packages. In some countries, such as Dubai and Abu Dhabi, every employee must have private health insurance and every employer must offer a health benefits package. This type of government regulation is an added challenge for employers who need to offer more than the minimum standard to attract and retain talent.

The need for greater retirement savings

“A child born in Brazil or Myanmar in 2015 can expect to live 20 years longer than one born in those countries just 50 years ago. By the middle of this century, the proportion of people aged 60 years or older in many countries will exceed 30%, similar to Japan’s current rate. These include countries in Europe and North America, but also Chile, China, the Islamic Republic of Iran, the Republic of Korea, the Russian Federation, Thailand and Vietnam.”

People are living longer than ever before and the dependency ratio (the ratio of people in the workforce to those in retirement ratio) is diminishing around the world. These demographic factors are putting social security systems and defined benefit (DB) pension plans under stress and in decline.

Globally, social security deficits are taking a toll on economies as governments are shouldered with heavy payouts. A 2017 World Economic Forum study found that by 2050, the world’s six largest social security and public employees’ pension systems (US, UK, Japan, Netherlands, Canada, and Australia) will have a joint shortfall of $224 trillion. If you also consider China and India, which have the world’s highest populations, the combined savings gap for the eight countries reaches a total of $400 trillion by 2050, a sum five times the size of the current global economy.

Driven by the same demographical pressures, the number of companies providing DB plans, globally, has shrunk steadily and significantly. Nowadays, for most workers, a defined contribution (DC) plan – a type of retirement savings plan, such as a 401(k) plan in the U.S.– in which the employer, employee, or both make contributions on a regular basis to individual accounts that are set up for each participant and benefits are based on the amounts credited to these accounts, is the only significant workplace retirement program.

With the majority of the retirement responsibility resting with individual plan participants to make the savings accumulated in these plans last throughout their lifetimes, employees are looking to their employer to help them plan for retirement.

Opportunities for employers

Despite these concerns, there are opportunities for employers to leverage new trends to improve the quality of life of their employees while still advancing business objectives. Benefits providers are in a unique position to offer solutions that better cater to the needs of employers and employees.

A 2017 Willis Towers Watson study found that 68% of multinational employers cite an increased focus on wellbeing (physical, financial, and emotional) as part of a strong global employee value proposition. The focus on wellness programs by employers is being “positively viewed by employees looking to improve their quality of life. Today’s workers look on their employers as a trusted source of more than just a paycheck, and they’re looking for more wellness program offerings that encourage healthy behavior.”

Voluntary benefit solutions offer a much needed relief for employers who are looking to provide competitive benefit packages while trying to toe the line on expense

There are multiple benefits to employers who are focusing on providing or improving workplace wellness programs. As the figures above indicate, workplace wellness programs help with recruitment and retention. Additionally, the focus on wellness helps employers tackle some of the health issues which are impacting productivity in the workplace, including stress and non-communicable diseases such as obesity, hypertension, and diabetes. Improved productivity also includes a reduction in employee absenteeism.

Research indicates there appears to be a “disconnect between the value that most employers say they place on wellness and what employees believe is being offered to them.”

Improved communication methods by employers may lead to increased employee participation which in turn, would promote a more productive workforce.

Appetite for voluntary benefits

Across the world, employees are expressing a desire to purchase voluntary benefits – products offered through an employer but paid for partially or solely by workers through payroll deductions. Voluntary benefit solutions offer a much needed relief for employers who are looking to provide competitive benefit packages while trying to toe the line on expenses.

The number of employees who want employers to provide a wider array of voluntary benefits is more than half [UAE (66%), UK (66%), US (55%), Greece (55%), and Egypt (55%)]. Types of voluntary benefits include: critical illness, hospital indemnity, pet coverage, ID theft protection, legal services, or any other health or lifestyle group benefit that can be withheld from wages.

Critical to promoting voluntary benefits is the ability to customize benefits to meet employee needs. With benefit programs sometimes underutilized, 65% of employers in the UAE, for example, strongly agree that having benefits customized to meet their needs would increase employee loyalty. Customization empowers employees with the flexibility to supplement their benefit needs – a vital component to retention.

Another advantage to customizable benefits is versatility. Benefits packages can be changed over time depending on shifting employee needs. Employers who spend time getting to know their employees’ concerns and provide customized benefits that directly address those needs are in poised to improve their employees’ quality of life, see higher engagement with benefits, and are viewed as much more desirable employers.

Education to help maximize benefits

The demographic and market forces that are sun-setting traditional DB plans and seeing the rise in DC plans are also leading into a new retirement paradigm: the need to reframe DC retirement plans from being viewed as savings plans to being seen as retirement income plans by enabling participants to annuitize part of their savings instead of taking a lump sum at retirement. The best ways to achieve this goal is by enabling appropriate regulations and effective participant education.

What is essential to note is that employees who typically take a lump sum from retirement are more likely to exhaust their savings. For individuals participating in a workplace retirement plan, taking a lump sum versus an annuity is a critical decision that is typically made at the point of retirement. Regulations should encourage annuitization by including annuities as a default payout option, enabling plan sponsors to work with annuity providers to offer lifetime income options within DC plans and mandating lifetime income disclosures on statements from retirement savings plans, so that participants can see how their savings translate into income. Employers should actively educate employees on the benefits and drawbacks of taking an annuity versus a lump sum.

Coupled together, these actions ensure that DC plan participants are informed of what their retirement income could look like and have the tools they need to secure a stream of guaranteed income; better preparing them for their future.
The evolution of the global employee benefits and pensions landscape touches on the most intimate aspects of people’s lives. Benefits providers can become lifelines and advocates for both employers and employees by helping to bridge a gap between their respective needs by serving as trusted partners that help navigate through uncertain times. ◊

 

 

 

Endnotes
1. MetLife’s Employee Benefit Trends Study developed in the U.S. (2017), India (2015), UAE (2017), Greece (2017), UK (2017), and Egypt (2015).
2. MetLife’s Employee Benefit Trends Study developed in the UAE (2017), Australia (2016), Egypt (2015), and UK (2017).
3. MetLife’s Employee Benefit Trends Study developed in the UAE (2017), India (2015), Egypt (2015), China (2015), and Australia (2016).
4. UAE Employee Benefits Trends Study, 2017, MetLife.
5. Ibid.
6. Global Medical Trends Report, 2018, AON.
7. Ibid.
8. UAE Employee Benefits Trends Study, 2017, MetLife.
9. World Report on Aging and Health, 2015, World Health Organization.
10. We’ll Live to 100 – How Can We Afford It?, 2017, World Economic Forum.
11. Ibid.
12. Current and Emerging Global Benefit Themes: Priorities for 2017, Willis Towers Watson.
13. Global Workplace Wellness: Healthy Employees, Healthy Business, 2016, Institute for Health and Productivity Management.
14. Ibid.
15. Ibid.
16. MetLife’s Employee Benefit Trends Study developed in the UAE (2017), UK (2017), U.S. (2017), Greece (2017), and Egypt (2015).
17. UAE Employee Benefits Trends Study, 2017, MetLife.
18. Ibid.

 

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