LONDON, 25 February 2013 – Aon Hewitt, the global human resource solutions business of Aon plc (NYSE:AON), has today published the UK findings of the Global Pension Risk Survey 2013 which shows that the tide is about to turn for the UK pensions industry.
Kevin Wesbroom, partner and UK lead, Global Risk Services, at Aon Hewitt, said:
“As liability levels have continued to rise, many pension schemes have been treading water and drifted further away from their long-term targets. Trustees need to prepare to take action for when funding levels improve so that their schemes are not left out at sea as a surge of de-risking opportunities and liability management activity floods the market.”
This year's survey of over 220 UK plans with combined membership of over three million people, and representing around £300 billion of assets, found that since the same survey in 2009, pension schemes have seen their average proposed timescale for reaching their long-term objective not reduce but increase by around one and a half years.
Kevin Wesbroom, said:
“The vast majority of schemes now have long-term targets in place - typically buy-out or self-sufficiency. However the survey shows that schemes have moved further away from reaching those goals over the last four years. In the 2009 survey they were hoping, on average, to reach their target in 2020 but in the 2013 survey that deadline has drifted out to 2025. This is as a result of spiralling liabilities, driven in the majority of cases by the historically low levels of yields on government bonds.
“Given this situation, schemes need to ensure that they are ready to take short-term tactical action to help them move towards, rather than away from their future targets. Despite ongoing economic uncertainty, it is feasible to imagine a period of benign asset markets and a reduction in liabilities on the back of rising interest rates. As part of a complete financial management plan, schemes should know what actions they would take in a variety of circumstances including this one.”
Other key findings of the survey are as follows:
- 90% of schemes now have a long-term objective, compared to just 60% in 2009.
- The long-term objectives of schemes are typically expressed as buyout (particularly for smaller schemes) or self-sufficiency/ low risk. The concept of self sufficiency is not well defined, and schemes should work through their own analysis, including long-term investment portfolio, residual risks reliance on sponsor etc.
- The average timescale to reaching long-term objectives has increased from 11.3 years in 2009 to 12.8 years in 2013.
- 44% of the respondents have frozen their plans as part of initial liability management efforts (up from 21% in the 2009 survey).
In the immediate wake of the economic downturn in 2008, schemes were focused on managing their assets as a priority. Assets have recovered since then, but schemes have seen soaring liabilities become a major challenge to their positions. However, while nearly half of the schemes surveyed have been frozen, the responses to the survey show overall a marked reluctance by trustees to participate in broader liability management exercises aimed at reducing long-term liabilities and accelerating flight plans.
Kevin Wesbroom continued:
“So far, de-risking has focused mainly on the asset side of the balance sheet but, in order to reach their longer-term objectives, pension schemes now need to start concentrating on managing their long-term liabilities as well. To date, schemes have been slow to take action on the liability side but we expect to see activity in this area increase, particularly with regard to pension increase exchange exercises at retirement.”
Notes to Editors
About the 2013 Global Pension Risk Survey
Now in its sixth edition, the Aon Hewitt 2013 Global Pension Risk Survey attracted a record number of 241 responses from the UK, covering total assets of around £300 billion and over three million members.
About Aon Hewitt
Aon Hewitt is the global leader in human resource 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.
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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 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 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.
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