On our first Employer DNA Broadcast - Survive to thrive - our panel of experts discussed the "cost-of-doing-business crisis" from a people, pensions and risk perspective, together with an assessment of the wider business environment. Post event, we invited our panellists to expand on the points they made, so you can explore each topic more fully. 

"Stability is a pre-condition for growth, enabling businesses to help challenged communities, recruit locally, invest in R&D, decarbonise the economy and invest for the longer-term."
Sara Tomley CBI

Stability and investment, for the long-term

Author - Sara Tomley, Confederation of British Industry (CBI)

The UK finds itself in the midst of instability; political, market and economic. Market instability matters because it means household instability. It drives up interest rates, it drives up inflation and it hits livelihoods. 

Without stability there will be no investment, no bringing down of debt, and no growth. The number one priority now must be restoring fiscal credibility and giving markets and firms confidence to invest.

Chancellor Jeremy Hunt acted to allay market concerns. This must be the first step in a campaign to restore confidence – including setting out a full and credible medium-term fiscal plan on 17 November alongside the Office for Budget Responsibility (OBR) forecast. 

Now, the new Prime Minister, Rishi Sunak, can lose no time in easing the impact of market turmoil on households and firms, and helping to restore fiscal credibility.

What are the key challenges facing businesses today?

  • Cash flow and energy costs (in some cases we’ve seen triple digit % price increases).
  • Household spending is tightening due to the increasing cost of living, particularly impacting consumer facing businesses.
  • Labour shortages. We have seen around one million people leave the labour market and wage growth is increasing by 6%, on average.

How can life be made easier for businesses?

  • We need to smooth the cliff edge looming for many firms in March. Business rates are set to rise by 10%.
  • There needs to be delivery on promised supply side reforms on planning, childcare, immigration and regulation.
  • Labour shortages need to be tackled; for example, by getting business involved in the current and future needs of the skills system.

Control the controllable, not the unpredictable

We must focus on what we can control. The CBI has established good dialogue with this government, working privately to inform their thinking, restore credibility and prepare for growth. At the same time, every business can also start getting some things right, such as the below. 

  • Treat employees well, as we did in the pandemic, with good wages and support for wellbeing. 
  • Treat suppliers well, especially our SMEs – for whom prompt payment has never been more important. 
  • Make the case for investment to our shareholders – there are prizes there for boldness.
  • Support our communities through tough times – businesses are an essential support system of our communities.

Stability is a pre-condition for growth. This will enable businesses to help challenged communities, recruit locally, invest in R&D, decarbonise the economy and, importantly, invest for the longer-term.

"An organisation’s DNA will enable it to develop and build an inclusive reward strategy that suits employees and the business."
Julia Turney Barnett Waddingham

Looking beyond pay to help employees

Author - Julia Turney, Barnett Waddingham

With headlines in the media of pay demands and strike action, it’s easy to see why employers are concerned about the financial impact of the cost-of-living crisis, both on them and on their employees.

But is just increasing pay enough and what if the level is not as expected? Also, organisations need to understand the longer-term impacts on their business.

Employee pay increases are a short-term benefit

Employers should start by recognising that the benefit of pay increases is often short lived. Often, once employees are given a salary increases, there is a short period where they are valued by employees. But as people become used to that income, the ‘bonus’ of the increase fades away.

For the employer though, the impact continues; for example, higher salary costs, higher benefit costs (where they are salary related) and higher pension costs. Employers need to think about the longer-term implications of salary increases and the increase in risks this creates.

The long-term value of engaged, supported employees

Organisations need to think about what can be done now, and in the longer-term, to actively support and nurture employees; for example, people value fairness, honesty, and transparency. If something that other companies are doing is not affordable, an employer should be upfront about it but stress the intrinsic value their organisation brings in other ways. Here are some ways to spend smarter when investing in, and engaging with, employees.

  • Guaranteeing a minimum number of hours to be worked. 
  • Flexible working patterns and hybrid working. 
  • Offering a range of benefits that support mental, physical, financial and emotional wellbeing.
  • Implementing savings using salary sacrifice and introducing (or re-promoting) discounted shopping platforms, highlighting the savings at a personal level.
  • Having policies that support employees at different stages of their lives.
  • A joint approach to improving sustainability and social impact in communities.
  • Opportunities for personal growth and promotions through mentoring and upskilling projects.
  • Communicating the organisation’s unique culture and values.

We recently worked with a client who was struggling to attract people in a competitive market and who wanted to improve its value proposition. We worked in partnership on a back to basics review of the reward and wellbeing strategy, looking at a myriad of management information, benefit stats, claims data, absence rates and policies.

The cost analysis showed that a simple two thirds of a day reduction in absence per employee will result in an increase in returns of around £1.4 million per year. This money could then be targeted elsewhere and spent smarter. The restructure and relaunch of a new absence management process also resulted in an improved offering, a better experience for employees and a saving of around £90,000.  

It’s not a "one-size-fits-all" approach however. An organisation’s DNA – the characteristics that make it unique - will enable it to develop and build an inclusive reward strategy that suits employees and the business. One that’s beyond pay, to meet the needs of all employees, now and in the future.

"The scale of recent movements in the market could have put a DB scheme in a fundamentally different place."
Jane Ralph Barnett Waddingham

Market volatility, inflation and employee pensions 

Author - Jane Ralph, Barnett Waddingham

Understanding the impact on DB schemes

As we navigate our way through uncertainty and volatile market conditions together, what should the priority action be in relation to defined benefit (DB) pension schemes?

The first priority is to understand the impact of changes in market conditions over the course of 2022, and particularly what recent market volatility means. And not just in terms of the funding level on the accounting or technical provisions basis – what it means for the long-term journey too. As with any business projection, new data points and expectations may change your strategy and it is important to consciously consider this rather than default to the status quo, or indeed being taken in a specific direction by the scheme trustees (or their advisers). In our experience the financial position of most DB schemes will have improved materially during the course of 2022, but there are significant risks ahead.

As an example, trustees have for a long time used the anticipated new funding code as a stick to beat a way, as fast as they are able, to a low-risk funding and investment strategy. A common theme across responses to the consultation on the funding code calls into question whether it provides sufficient flexibility and is fit for purpose. Recent market events have added weight to many of these arguments, accelerating the timeframe to “significant maturity” which, in turn, requires adoption of a low risk (low return) liquid investment strategy.

Such a strategy may align with your objectives but should not be shoehorned to fit. The implications of early adoption of a low risk strategy should be understood – including whether it is truly low risk under all scenarios – and what the implications are for sponsor contributions going forwards.

Barnett Waddingham has projection tools enabling us to work with you to understand the range of potential outcomes and how these influence, and can be influenced by, sponsor contributions.

Further it is a common view that the DB pension scheme is an unwanted complication which should be passed to an insurer as soon as it is affordable to do so. But not all sponsors will yet want to do this, nor are all schemes ready to do so. The acceleration of the journey to buy-out will also generate additional challenges as insurer capacity – and the people resource within insurers – appears likely to influence the pace at which deals can complete. 

Does this lead to DB schemes adopting a holding pattern? What might this look like? We are already working with clients to consider these questions, ensure opportunities are not missed and costs are minimised.

Finally there also remains an immediate thorny question as to what to do with any illiquid (or temporarily illiquid) assets in the portfolio. Should you take a haircut on these now or unwind the position over time? Our holistic funding and investment advice to sponsors considers all the options and ensures whichever approach is adopted, the scheme can meet the cashflow requirements associated with the long tail pension scheme model.

No doubt there will continue to be uncertainty for a while to come and scenario analysis with easy access to modelling of funding and investment outcomes – an integral part of our DB Navigator tool - can help prepare you to respond appropriately.

Supporting DC scheme members 

Those who watch the value of their DC pension pots will no doubt have been dismayed by recent falls in value. It is easy for them to become disheartened. Where has the money they have paid in gone? And how will they ever afford to retire?  

Good communication, education and information can go some way to assist. For younger members, for example, that might mean explaining how values fluctuate and to look longer-term.  

However, it is a more difficult issue when employees want to stop contributing as it is unaffordable. This could mean offering a lower employee contribution alternative or supporting a break in pension contributions in some way. Often the net increase in take home pay will be lower than expected and fail to deliver the boost to disposable income but does significantly harm retirement outcomes. Increasing income can, for some, reduce in-work benefits and therefore this will need to be considered. 

Again, I come back to first getting an understanding of the issue first and then looking at potential solutions. Sponsors need to have a good, in-depth understanding of their scheme members, using data analytics, so that they can then offer information and support that is relevant and helpful. We call this “Employer DNA” — which can be used to gain a detailed understanding of a workforce's pension scheme members.  

Predicting the impact on members and putting in place educational support will help them make better decisions. Being able to clearly articulate a member’s retirement outcome, factoring in a full state pension of £9,640 p.a. (£185.15 per week), can engender a feeling of financial wellbeing and reinforce the need to stay in the scheme and look elsewhere for cost-of-living improvements. 

It’s important that employers have access to data that, not only looks at employment factors (such as age and salary) but also provides socio-economic profiles. This helps employers understand the characteristics of their workforce and consider what other measures (apart from increasing pay) will have the most impact on living costs without harming long term retirement savings. Barnett Waddingham has developed an interactive model to allow employers to undertake this analysis and make better and quicker data-based decisions.  

Looking at members’ needs in this way can help employers think about their benefit spend and refine it, to provide more targeted and impactful solutions for employees, without having always having to find additional budgets.  

Our suite of GEM tools provides clients with the resources needed to undertake strategic reviews that complement in-house resources. Our consulting support can then add value in key areas to deliver solutions that achieve an employer’s objectives and maximise the value employees receive from their remuneration packages. 

"Our first thought is always for the people affected, and we are actively working to make a difference, so organisations not only survive, they thrive."
Keith Smith Barnett Waddingham

The cost-of-living crisis and the key drivers of risk

Author - Keith Smith, Barnett Waddingham

It should not have escaped anyone’s notice that the cost of living has increased in recent months. In the media this has been labelled the "cost-of-living-crisis" because so many people must accommodate a material drop in their standard of living. Unfortunately, however, this is just one of a number of rapidly evolving risks facing individuals and organisations alike.

At Barnett Waddingham our first thought is always for the people affected. And so we are actively working to make a difference, so organisations not only survive, they thrive. If organisations are thriving, this can only benefit their employees.

Material risks within an organisation need to be managed, and in this rapidly evolving landscape these risks are emerging at an ever increasing pace. We are continuing to work with our clients to ensure they understand the interconnectedness of such concerns, and providing guidance on how best to adapt to ensure resiliency. 

Identifying the emerging risks

In our Employer DNA broadcast, we listed three sources of disruption that organisations need to factor into their response to emerging risks.

  • Climate-related disasters – The issues of severe weather and natural catastrophe incidents are likely to grow exponentially due to the consequences of climate change.
  • Geopolitics – Global tensions are rising, not abating.
  • ESG – Environment, social and governance matters are the new priorities for organisations and societies alike.

These are not the only sources of risk for organisations, but they are sources we have identified as driving much of the current instability that the CBI identified as a ‘barrier to growth’ in its recent report.

Climate concerns

Climate-related disasters are not new, but what is new is the regularity with which these disasters are setting records for impact and frequency. These events are dislocating societies. They are disrupting the everyday activities of organisations of all sizes – for example, organisations with dependencies on overseas supply may find they are at risk from supply chain disruption due to catastrophic flooding. Or, alternatively, severe weather may be causing power or infrastructure disruption. We can support clients in a number of ways, including the below. 

  • Help organisations identify which of their operations may be most at risk from climate-related disasters by sourcing and providing analysis of available data. We can then help our clients develop processes, controls and resilience options for each area of concern.
  • Help organisations analyse and create appropriate response strategies to ensure the continuity of their operations. We can then help our clients to exercise and test these strategies to ensure that they are prepared and resilient. 

Global turmoil

Geopolitics is in a particularly turbulent state. With war in Europe and rising tensions in other parts of the world, global economic conditions are unstable, and social amplification magnifies some of the risks.

As we have seen in the UK, unfunded government spending leads to increased borrowing costs, currency exchange pressures and a falling level of general stability. There is limited direct action any organisation can take to offset the scale of these impacts, but organisations should not feel helpless. For our clients, we can support as below. 

  • Facilitate effective strategic reviews and help organisations develop a range of scenarios that can give insight into risk and resilience options. 
  • Help organisations establish horizon scanning sources and methods to identify emerging risks from changes in the geopolitical environment quickly.
  • Help strengthen risk and resilience processes so that fast and effective responses can be deployed when disruptive political or economic changes occur.
  • Help by training staff in techniques such as scenario analysis, bow tie methods and simulation, using these tools to make the organisation more resilient to economic instability.
  • Provide the analytical underpinning necessary to ensure those client scenarios remain realistic and plausible.

Environmental, social and governance pressures

With ESG, organisations are in a better position to address threats and opportunities as there are more internal control options. With ESG, getting it right is not only a growing expectation for societies, but it is also rapidly becoming an investment gateway condition. And with an organisation's reputation being one of its most valuable assets in the marketplace and when attracting talent, getting ESG wrong comes with increasingly significant consequences. This means supporting our clients in the ways below. 

  • Helping facilitate the internal discussion necessary to inform ESG strategies to realise some of the opportunities that are emerging, while avoiding some of the pitfalls that will undoubtedly see the end of some organisations.
  • Providing insight into the changes going on with global ESG assessment and compliance standards as they develop into a regulatory environment for all types of organisations.
  • Helping organisations develop ESG risk and resilience processes and policies, so reporting and compliance with ESG expectations is not a burden but simply business as usual.

Find out more about our risk management and business continuity services here

Survive to thrive

How organisations boost their resilience and spend smarter will shape their future success. Watch the broadcast and hear from our expert panellists as they look at the challenges ahead.


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