LONDON, 19 December 2011 – Aon Hewitt, the global human resource consulting and outsourcing business of Aon Corporation (NYSE:AON), today revealed data from its latest DC Index tracker highlighting the detrimental impact of rising annuity prices on expected retirement income.  The data shows that, while gilts have served to provide some protection against increasing annuity costs, the projected retirement incomes of equity focused funds have suffered noticeably despite positive fund performances.

The Aon Hewitt DC Index tracker shows the projected fund value at retirement for UK individuals aged 30, 60 and 65 with defined contribution (DC) pension schemes, as well as the corresponding projected retirement incomes. Over the past 12 months, ending 30 November, the expected fund values and retirement income for DC members have changed as follows:

• For a 30 year old, the expected fund value at retirement has increased by 4%, while the projected retirement income has decreased by 8.3%

• For a 60 year old, the expected fund value at retirement has increased by 11%, while the projected retirement income has only increased by 0.4%

• For a 65 year old, the expected fund value at retirement has increased by 11%, while the projected retirement income has only increased by 1.3%

*For actual figures see notes to editors

John Foster, Benefits Consultant at Aon Hewitt, said:
“Since the start of the DC Index in September 2007, annuity prices have risen by 19 per cent and are currently the highest they have been throughout the period.  As a result, over the past 12 months, we have seen that any increases in fund value have effectively been eroded, leaving members with little, if any, benefit to their retirement income.”

Despite the gloomy outlook, the findings from the index provide reassurance to DC members that the established practice of moving from equities to gilts when approaching retirement holds good.

John Foster continued:
“Fund values for those approaching retirement benefited from a 13 per cent rise in gilt prices over the year which provided valuable protection against the rising annuity prices and highlighting the importance for members approaching retirement of investing in an appropriate asset class.  Ultimately, gilts have been doing what they are supposed to in countering both the volatility in the markets and the increasing cost of annuities – which is reflected by the figures for 60 and 65 year olds.

“Despite considerable volatility during 2011, equity markets, as at the end of November, have produced positive returns. Unfortunately these returns have not been substantial enough to offset the continuing annuity rises. On the surface, this makes depressing reading for funds heavily exposed to equities; typically the asset allocation of younger members, but it is worth pointing out that during the course of the last 12 months figures have been in positive territory.”

In November, the expected retirement income of a 30 year old fell to its lowest point in 2011 at £17,800 p.a., as the volatile performance of the markets failed to counteract increasing annuity prices – even though at its peak in April the figure was a healthier £20,700.

John Foster concluded:
“If nothing else, these figures really emphasise the importance of remembering that contributing to a pension is a long term commitment.  As such, short term volatility and the recent poor performance in the stock markets is not the end for funds concentrated in equities.  In fact, it is because of this volatility and the potential for equities to deliver high returns that DC scheme members are right to consider them in their search for attractive early year returns before switching to more stable assets in later years.”

Ends

Notes to editors

*Fund values and projected retirement incomes (£)

About the Aon Hewitt DC Index
The Aon Hewitt DC Index follows the projected retirement income of individuals at different ages who contribute 10% of a £25,000 salary to a defined contribution (DC) pension arrangement and have an existing fund (valued as at September 2007) of £15,000 for age 30 and £150,000 for ages 55 and above.

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

Giles Abbott
Capital MSL
020 7307 5340
giles.abbott@capitalmsl.com