LONDON, 30 December 2011 – Aon Hewitt, the global human resource consulting and outsourcing business of Aon Corporation (NYSE:AON), has today announced the year-end figures for the Aon Hewitt 350 Index. All of the common valuation methods for pension schemes show that 2011 has been another tough year as schemes continue to face abnormal market conditions:

- UK accounting deficits for the FTSE 350 defined benefit (DB) pension schemes have increased from £32 billion (at 30 December 2010) to £59 billion (at 29 December 2011) despite companies contributing an additional £10 billion during the year

- Funding positions on the accounting measure have varied between 87% and 97%, with deficits ranging between £10 billion and £70 billion

- Solvency deficits have ballooned from £240 billion (at 30 December 2010) to over £450 billion (as at 30 December 2011), with funding levels falling from 66% to 52%.

Marcus Hurd, principal & actuary at Aon Hewitt, said:
 
“Significant pressure is being placed on pension scheme valuation methods as a result of abnormal market conditions. At a macro-level, we are currently seeing all-time low gilt yields, which are being suppressed by Quantitative Easing and the flight to safety from the Eurozone, as well as sustained heightened market volatility. When analysing their scheme valuations, actuaries, trustees and companies must decide whether current conditions represent exceptional market circumstances or whether this is the new norm.”

Furthermore, the pressure on valuations and the significant variations between each method demonstrates the difficulty that all involved with pension schemes have when trying to evaluate their position and when taking long-term decisions.

Marcus Hurd continued:

“The challenge for trustees and sponsors is whether to believe what the figures are telling them, and how to react.  On the one hand, the abnormal market conditions mean that every valuation measure is under pressure; however on the other hand, ignoring what the figures are saying would clearly be short-sighted. 2012 must, therefore, be a time for trustees and sponsors to look across all valuation models and exercise common sense to make well-informed decisions. Valuation models remain an essential tool, but are a decision aid, not an answer in itself. Decision makers should evaluate what they are trying to achieve and how they are going to do it. No longer can schemes make decisions based on the blind application of valuation rules.

“For schemes with actuarial valuations in 2012 the increasing buyout and funding deficits will create a specific set of challenges.  While accounting and buyout deficits clearly do have implications, it is funding deficits that drive cash contributions, and blindly rolling forward historic valuation methods could result in unaffordable deficits and unnecessary demands for extra cash. That may or may not be the right response, depending on each scheme’s circumstance, but there is clearly a need for a sensible discussion between trustees and sponsors.”

Ends

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.

Valuation methods
Accounting - the method required by the International Accounting Standards Board, which compares the market value of scheme assets to the value of the scheme's obligations, discounted using a AA corporate bond yield. In other words, this measure compares the scheme's assets against a notional AA corporate bond portfolio.
 
Funding - the measure determined by the scheme trustees and agreed with the company, which determines the level of cash contributions required into the scheme. This measure is often, but not always, related in some way to the yields available on gilts.
 
Solvency - the expected cost of insuring the scheme liabilities in full with an insurance company. This measure tends to be higher than accounting and funding measures because it involves the insurance company assuming full responsibility for the scheme obligations and a minimal risk asset portfolio.

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.

About Aon
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.

Media Contacts: 

Colin Mayes
Aon Hewitt
01372 733689
colin.mayes@aonhewitt.com

Quintin Keanie
Capital MSL
020 7255 5154
quintin.keanie@capitalmsl.com