London, 19 March 2014 – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), has commented on the announcements on changes to pensions in the Chancellor's Budget Speech.

Kevin Wesbroom, senior partner at Aon Hewitt said:
"Real surprises in Budgets are rare but today's announcements mean a whole new ball-game for DC pensions. This is clearly welcome news for members as they will get greater flexibility to manage their finances - however it may have unexpected consequences.

"On the one hand we applaud the Government's intention to free up choice and flexibility for members, but on the other, it is clear that is going to be up to the industry to make these changes happen. The Government has not advised on how all this can be achieved nor suggested ways in which the obvious difficulties can be surmounted. Clearly there will be a key role for trustees and employers as well as providers as there will now be increased responsibility on them in this new retirement marketplace.

"Flexibility comes with risks and responsibilities - members may outlive their funds and become dependent on the £7,500 a year State Pension.

Debbie Falvey, DC consultant at Aon Hewitt said:
"Supporting these decisions with advice is a key part of what has been outlined - but that throws up major questions around how that advice can be delivered - face to face, via electronic means etc.  Who is going to supply it, how will it be funded and how is the Government differentiating between 'guidance' and 'advice'? 

“That guidance should not start at retirement, but long before when members select how to derisk in the run up to retirement.  If drawdown is selected, the need for advice won't stop at retirement and access to ongoing reviews and to good quality annuity advice at some future point will be important.

"What does seem certain is that product proliferation is almost inevitable. While it should be welcomed for the flexibility it will bring, it could also lead to a considerable confusion."

Jan Burke, partner at Aon Hewitt said:
"In the short term we are concerned that the costs of running schemes will increase as trustees grapple with the inevitable need to review administration, scheme design and in particular the default design, as well as the additional communications to members who will need to understand their new options and how this might influence their investments.

"Neither are these changes just confined to the DC marketplace - they will also have knock-on implications for DB schemes too. The interaction with DB has yet to be decided but would form an important part of the overall flexibility members want, regardless of their scheme type."

Commenting on the macro-economic implications of the Budget announcement, Tapan Datta, head of global asset allocation at Aon Hewitt, said:
“The official economic and budget forecasts for the next few years pour a sharp dose of cold water on the rising level of optimism on the UK. Much of the spending cuts are still to come beyond the term of this government.  To bring public expenditure levels as a share of GDP down to the level planned by 2018/19 we would regard as very challenging.  The aim to rid us of these large budget deficits hangs on achieving these dramatically lower spending levels - taxes are maxing out in their ability to plug the budgetary hole.
 
“The gilt market is unlikely to be perturbed or comforted by these projections as there is very little here that is new.  Gilt yields will remain very dependent on the utterance of central bankers here and in the US.  The UK bank rate will have to rise sooner or later, and with it, gilt yields. The budget does nothing to change this.”

Media Contacts:
Colin Mayes                                        Giles Abbott
Aon Hewitt                                          Capital MSL
01372 733689                                      020 3219 8805
colin.mayes@aonhewitt.com                giles.abbott@capitalmsl.com
 

Notes to editors

About Aon Hewitt
Aon Hewitt empowers organisations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organisational and personal performance and growth, navigate risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness.  Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide.  For more information on Aon Hewitt, please visit www.aonhewitt.com.

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About Aon
Aon plc (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 65,000 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 www.aon.com for more information on Aon and www.aon.com/manchesterunited to learn about Aon's global partnership and shirt sponsorship with Manchester United