Mar 1, 2012
LONDON, 01 March 2012 – Aon Hewitt, the global human resource consulting and outsourcing business of Aon Corporation (NYSE:AON), has today said that the funding levels of the FTSE 350 Defined Benefit pension schemes drifted up slightly from £50bn to £55bn at 27 February. In contrast to the recent period of volatility, the Aon Hewitt 350 Index remained fairly static during the month.
Kevin Wesbroom, principal at Aon Hewitt, said:
“The stable deficit during February will have been a relief for employers, who have seen the aggregate funding position bouncing around between a £30bn surplus and a £90bn deficit over the past five years. However, employers are still struggling with this burden and would prefer to focus on providing good pensions for their employees. With that in mind, we believe that the concept of Defined Aspiration (DA) schemes which Steve Webb, the Pensions Minister has recently backed, could be a sensible long-term compromise and solution.”
For employers, DA schemes would require very similar financial commitments to Defined Contribution (DC) schemes, as they would just pay the contributions and would not be required to take a liability onto the company balance sheet. The sort of balance sheet volatility that DB schemes have generated would simply not exist. However, in contrast to DC, a DA scheme would target a pension for employees which could look like a traditional DB pension.
The emphasis for the employee is in the nature of the pension promise – it is an aspiration. DA schemes would set out to provide an ambitious, and possibly inflation-proofed, pension. But if external factors – be they markets, longevity etc. – make it impossible to meet the promise, then the pension benefits can be varied. This for example may come in the form of changes to the indexation which may be temporary or longer term, or the pension age might go up. Whatever changes, the cost is a fixed amount, but the benefits can change.
Kevin Wesbroom continued:
“If a member of a DC scheme is looking to retire today they have no way to avoid the effects of Quantitative Easing driving down annuity rates. While Defined Aspiration schemes are not perfect for members, neither are DC schemes where the member is faced with the full uncertainties of the market. The concept of DA may be difficult to deliver, but if the outcomes could be better for members, it must be worth a try. And if they are set up in a way that avoids the accounting deficits associated with DB schemes, sponsors should be interested.”
Notes to Editors
About the Aon Hewitt 350
The Aon Hewitt 350 index tracks the aggregate final salary pension scheme deficit for the FTSE350 companies. It is based on the information provided by FTSE350 companies in their semi-annual company accounts and updated for current market conditions on a daily basis.
About Aon Hewitt
Aon Hewitt is the global leader in human resource consulting and outsourcing solutions. The company partners with organisations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit www.aonhewitt.com.
Aon Corporation (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 61,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world's best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit http://www.aon.com for more information on Aon and http://www.aon.com/manchesterunited to learn about Aon's global partnership and shirt sponsorship with Manchester United.
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