News Releases

LONDON, 16 November 2009 – The UK’s combined defined contribution (DC) pension stood at £489 billion at the end of October, down by £18billion from September, according to Aon Consulting, the leading employee risk and benefits management firm. This is the biggest fall since February, and follows a period of rallying DC assets as a result of stock market increases.  However on a more positive note, earlier in the month combined DC pension assets reached a 16 month high of £520billion, a level not seen since June 2008.

Aon’s monthly DC Pension Tracker measures the total asset value of UK workers’ DC pension accounts. It also tracks the income in retirement of individuals at different ages who contribute 10% of a £25,000 salary to a DC 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.

Highlighting the current uncertainty being faced by UK workers as a result of equity market volatility, a 65 year old retiring on 31st October 2009 would receive an annual retirement income of £8,593. If the same worker had retired six months earlier (30 April 2009), they would have only received £7,133. This is the equivalent of over £120 every month, or £29,200 over the course of 20 years.

Richard Strachan, senior consultant at Aon Consulting commented: “While October finished slightly down compared to September, the general trend for the UK’s DC pension savings is on the up. There is still significant volatility, though, and it is vital for workers to take an active interest in their retirement savings, evaluating whether they are invested in the right funds for them, and to have some very clear goals and a strategy to achieve them.”

Flight to Perceived Safety

According to separate research from Aon, British workers are increasingly investing their DC pensions in their scheme’s default fund, potentially as a result of the continued uncertainty in investment markets. The 2009 Aon Benefits and Trends Survey, which polled 650 companies across 13 sectors, revealed that the majority of employers are seeing more than 80% of their employees invested in the default fund.

Strachan continued: “In turbulent economic times, it’s understandable that members are seeing the default fund as a safe haven.  However, the security of the default fund is down to those managing the scheme. To ensure that members are getting the cautious investment option they think they are, scheme investment, and the performance of default funds in particular, should be a priority for those running DC pensions.”

“There is a trend towards increasing the number of investment options; however, too much choice will often lead employees to select the default option through fear or inertia.  Employers and trustees need to ensure that they offer an optimal number of investment choices.

The key point is that employers and trustees must clearly communicate the options available if members are to make informed decisions that are right for their circumstances.”

Ends
Notes to Editors
About the Aon DC Pension Tracker
The Aon DC Pension Tracker (“the DC Pension Tracker”) provides a realistic gauge of how the British DC pension market is faring by examining how the wider economy is impacting on the pensions of average workers. The research tool does two things:

1.       Tracks the change in size of the British DC pension market.
2.       Calculates the expected pension income at retirement for individuals. This is based on assumptions for both future investment return and inflation as well as taking into account the actual changes in investment performance and annuity rates.

The DC Tracker examines the changes in workers’ pensions month on month, depending on different age groups and assuming 100% of the pensions are invested in equities. It tracks the income in retirement of individuals at different ages who contribute 10% of their £25,000 salary to their retirement savings and have an existing fund (valued as at September 2007) of £15,000 for age 30 and £150,000 for ages 55 and above. The DC Tracker shows what this would be worth at the time the press release is issued.

About the Aon Benefits and Trends Survey

The 2009 Aon Benefits and Trends Survey, polled 650 companies across 13 sectors on their DC pensions, health and risk benefits and flexible benefits

For press enquiries please contact:

Leo Wood
leo.wood@fd.com
0207 269 7137

David Skapinker
020 7505 7478
David.skapinker@aon.co.uk
http://aon.mediaroom.com

About Aon Consulting
Aon Consulting Worldwide is among the top global human capital consulting firms, with 2008 revenues of $1.358 billion and more than 6,300 professionals in 117 offices worldwide. Aon Consulting works with organisations to improve business performance and shape the workplace of the future through employee benefits, talent management and rewards strategies and solutions. Aon Consulting was named the best employee benefit consulting firm by the readers of Business Insurance magazine in 2006, 2007 and 2008.  For more information on Aon, please visit www.aon.mediaroom.com.

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Aon Consulting Limited is authorised and regulated by the Financial Services Authority