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Aon Hewitt says the Budget has thrown up inconsistencies in pension outcomes
NYSE:AON

LONDON, 19 March 2015 – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has said that yesterday’s Budget has produced potential inconsistencies in pension outcomes.

Removal of National Insurance for under-21s has perverse outcome for pensions
Lynda Whitney, partner at Aon Hewitt, said:
“The removal of National Insurance (NI) for those under the age of 21 will have a perverse outcome for pension savings.  Most pension schemes now use salary sacrifice so that pension contributions are NI free as well as tax-free, cutting the cost to the member of pensions saving.

“Unfortunately, this NI benefit will no longer be available to those under 21. This will increase the cost of pensions savings by 12% for a typical person under the age of 21.

Inconsistency between DB and DC Lifetime Allowance
Lynda Whitney said:
“There is a stark inconsistency between the effects of the new Lifetime Allowance (LTA) of £1 million on defined benefit (DB) and defined contribution (DC) pensions.

“In the DC world, £1 million may buy an increasing pension of only around £25,000pa, while in the DB world you are allowed a pension of £50,000pa without breaching the Lifetime Allowance (LTA). This is because HMRC uses a fixed factor of 20 to calculate the LTA for a DB member and you cannot currently buy £1pa of increasing pension for anything like as low as a £20 premium.

Lynda Whitney continued:
“If this inconsistency is not resolved we could see the development of middle and senior managers wanting to join a DB scheme just to ‘bed & breakfast’ their pensions in order to get the higher tax allowance.

“It’s also worth bearing in mind that the LTA now limits DC pensioners to an income which is probably below the national average earnings for full-time employees (£29,536pa).”

 

Media Contact:
Colin Mayes                                        Marina Jane Sanchez
Aon Hewitt                                           CNC
01372 733689                                      020 3219 8811
colin.mayes@aonhewitt.com                marina.jane-sanchez@cnc-communications.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 66,000 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, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited to learn about Aon’s global partnership with Manchester United.

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