There are, however, differing views on the subject – including the 'pros and cons'- and just a handful of players in the market so far with more to follow and further developments to be made. So, what is the corporate wrap?
Some would argue that a more accurate description would be a 'corporate platform'. The word 'wrap' is taken from the IFA market, but the key differentials are the area of advice and that the corporate wrap is centered around workplace benefits as opposed to retail. It has a set of product wrappers that might include a DC pension, Group SIPP, possibly a retail SIPP, ISA, share save, and SAYE with the ability to transfer between wraps – and it should extend further than this to include protection, healthcare and flexible benefits. This will enable employees to make the most of their benefits, presented in a clear concise format, encouraging them to take action and control of their wealth and engage further with their employer. Eventually one would review the ability to transfer across legacy pensions, savings, even debts, therefore providing a complete overview of an employee's financial situation.
Where are we now?
Scottish Widows entered the market early last year with its platform 'mymoneyworks' comprising a pension, ISAs and cash saving options where employees can make use of the platform even if they don't take up the pension. It has a 'reality check' where employees can analyze their financial health and priority are highlighted as high, medium or low risk. There are tools and calculators to check income and expenditure and identify where employees could free up money for savings and so on. Also available is financial information in relation to products and employees are guided to Scottish Widows' advisers or to an IFA for more complex issues.
HSBC has launched Workplace Retirement Services whilst more players in the provider market will follow suit. Standard Life bought online benefits provider Vebnet, Threesixty and the software firm Focus Solutions. Friends Provident teamed up with technology provider FNZ and Axa, Aviva and Zurich have all voiced their intent to join the group.
Hargreaves Lansdown has launched its corporate Vantage wrap where employees can contribute through payroll into a choice of ISA, pension, and fund and share accounts. It also offers calculators and expert information on funds, stocks and other financial issues.
A number of Employee Benefit Consultants are also set to follow, although some would seem to be better placed than others. For example, Jardine Lloyd Thompson has Benpal, its flexible benefit platform; NPI SIPP which it acquired; fund manager IIMIA; and it has a key market share for its pension administration software Profund. So, Jardine Lloyd Thompson has the key 'nuts and bolts' as it were, and it will be interesting to see its developments.
There is also a debate as to whether the providers or the benefit consultants are best placed to develop and launch to market the corporate wrap. Key areas to consider are whether a company has the technology, funds under management and capital to invest. And why spend the money if someone else has a solution for you.
Pros and Cons
The overall feeling is that the corporate wrap is the future of how benefits will be packaged to employees by their employer. It still does have its critics, however, and here are the 'pros and cons'.
There is maximum benefit for the employer in terms of engaging employees. Flexible benefits are a once a year choice whereas with the wrap the information can be accessed daily and portfolios can be monitored and adjusted as required.
It will educate the low to medium earners who don't have access to a financial adviser. It will help them to gain an overview into their financial situation and guide them through managing their finances, hopefully turning those in debt into savers and eventually IFA clients of the future.
People are encouraged to save: they can use the tools and calculators to see how they can get to where they want to be, whether that may be paying off debts or saving for a new car.
Money can be easily transferred. Maturing shares can be rolled into an ISA.
There is flexibility for the employee. DC employer pension contributions could go into an ISA instead, perfect for the person wanting to save for a deposit or the high earners affected by tax restrictions on pensions
For the employer, it becomes easier to recruit and retain staff and as the corporate wrap falls under contract based scheme rules the provider will handle the administration and delivery.
Financial education in the workplace should be a large part. This should be delivered to employees in the form of seminars and one to one meetings and will be hugely beneficial.
Some employees may feel uneasy about their employer having access to their financial information
The concept will only work if the financial education is right, the tools are available and the information is clear and concise
Will there be true independence or will providers 'push' their own products? This could be avoided by charging for the pension and whole package as opposed to the individual products, but will that be enough?
Will moving data from one corporate wrap to another be straight forward?
What if the employer wishes to switch pension?
Could there be some areas of conflict with the employer's interest? For example, rolling maturing company shares into a SIPP. The employer would also want to keep the focus on employer benefits as opposed to previous pensions and external products.
One thing for sure is that corporate wraps are here and are looking to be the future of employee benefits. It will be interesting to see how they develop, how they will co-exist alongside personal accounts, and whether they will be accessible over time to the smaller employers as well as the larger market.
What is your view?