LONDON, 15 April 2013 – Aon Hewitt, the global human resource solutions business of Aon plc (NYSE:AON), today releases new analysis of the UK findings of its Global Pension Risk Survey 2013, which confirms  a fundamental shift towards greater scheme diversification and less reliance on equities for generating growth.

Findings from the 2013 Aon Hewitt Global Pension Risk survey show that over the next 12 months, 41% of UK pension schemes expect to reduce their exposure to UK equities, with 28% planning a reduction in allocations to global equities throughout 2013. However, some pension schemes said that they see equities as a buying opportunity indicating the traffic is not all one-way. Conversely, significant percentages of schemes intend to increase investment in corporate bonds and alternatives - as well as making more use of derivative strategies and active asset allocation - as they seek growth from a more diversified asset pool.

The findings of the survey display the continuation of a longer term trend of the past 12 years, during which average equity allocations in pension schemes have almost halved from nearly 80% to 40%, while bond allocations have more than doubled from around 20% to over 40%, making bonds the new dominant asset class.

John Belgrove, senior partner in Aon Hewitt's Investment Consulting team, said:

“The results of the survey provide more evidence of a structural shift in the UK pensions industry’s view of equities as the main source of portfolio growth. Despite an equity performance recovery of around 70% from the low point of 2009, pension schemes continue to display a desire to move away from the asset class. . While equities will continue to play an important role in scheme portfolios, the focus for the future is on risk management through hedging and diversification. The ‘cult of the equity' is history for defined benefit schemes.

“But trustees and sponsors continue to face a challenging investment environment and, due to the ongoing low level of gilt yields, they have also been tasked with coping with upwardly spiralling liabilities. As the battle for deficit reduction intensifies, what we have seen is a growing focus on developing more sophisticated asset management strategies that aim to provide equity-like growth potential with bond-like volatility.”

As part of this trend of diversification, the survey indicated that one-third of UK pension schemes are planning to increase their exposure to alternatives, with a similar number increasing derivative strategies and looking to grow their active asset allocation. Larger schemes with over £1 billion of assets are the most committed to diversification with a net 37% expecting to increase their portfolio allocation to bonds over the next 12 months.  In the same period, nearly half the schemes of this size are planning to grow their alternative asset holdings as they work towards self-sufficiency. This represents a greater level of diversification compared with smaller schemes with under £1 billion assets, which more commonly have a long-term goal of achieving an insured buy-out.

This year's Global Pension Risk  Survey of over 220 UK schemes, representing around £300 billion of assets, found that compared to the same survey in 2009, schemes are increasingly using forms of leverage previously overlooked by conventional asset management. The focus is on reducing overall pension risk while simultaneously looking to free up capital for deficit recovery purposes.

John Belgrove continued:

“Our survey shows that an increasing percentage of pension schemes favour diversification into alternative asset categories and the active management of bonds which continue to play a central role in portfolios. We expect to see further demand from trustees for asset solutions such as diversified growth funds and even more use of derivatives as pension schemes strive to reach their long-term objectives.

“Having said that, innovative strategies can create significant governance challenges for both large and small pension schemes. This is driving up demand for fiduciary management or delegated investment, as schemes outsource to third party specialists. Smaller schemes are particularly showing an appetite for delegation as they try to cope with limited time, money and expertise. Furthermore, as the market matures and offers a greater range of tailored solutions, this year’s survey shows a record appetite for partial delegation of asset allocation and hedging."

Other key findings of the survey are as follows:

• Delegation has found greater favour among smaller schemes with 20% of those under £100m having already implemented full delegation of their investment policy.
• The most commonly delegated investment activity is asset manager monitoring, with almost 50% of respondents having already implemented or very likely to delegate to a third party.

Media Contact:    

Colin Mayes                                         Giles Abbott

Aon Hewitt                                            Capital MSL

01372 733689                                        020 7307 5340

colin.mayes@aonhewitt.com                  giles.abbott@capitalmsl.com

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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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 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.