LONDON, 17 October 2013 – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has said that pension schemes face a decision on how to react as economic circumstances combine to offer de-risking  opportunities, and that schemes that prepared in advance are already reaping the rewards.

Over the past few months, the funding positions of UK pension schemes have steadily improved.  On a buyout basis (just one possible measure), the Aon Hewitt Pension Risk Tracker shows that the typical funding level of schemes in the FTSE100 has increased from just 50% in June 2012 to over 65% in late September 2013.  As funding levels have tracked upwards, the number of schemes which have acted to underpin those gains has also increased.

John Belgrove, senior partner in Aon Hewitt's Investment Consulting team, said:
"The primary reason for the increase in activity has been the rise in bond yields - sparked by talk of a tapering to QE - which for many schemes flows straight through into an improved funding position. Although still at low levels by historic standards, bond yields are now at a point that more schemes are considering to be close to fair value.  More trustees recognise that it may not be helpful to remain constrained by hoping for a return to 20th century yield levels.  Therefore, capturing changes of the magnitude that we've seen since the spring is well worth doing."

While financial conditions in 2009 to 2010 were very different to 2012 to 2013, the funding positions at certain dates are remarkably similar.  The typical FTSE100 buyout level was 51.7% at 1 June 2009 (compared to 51.3% at 1 June 2013) and that increased to 63.6% by 30 October 2010 (compared to 64.0% at 15 October 2013).  However within a year - by October 2011 - it had fallen back to just 51%.  History may not repeat itself but with each passing year, closed and frozen pension schemes find that the time they have to meet the liabilities becomes shorter.

Paul McGlone, partner in Aon Hewitt's Retirement team, said:
"What this tells us is that the focus here isn't about trying to guess investment market movements, it's about how pension schemes monitor their funding position and how they react to changes - and that's a governance question.  We've seen in recent months that schemes that did act in advance and set trigger points, have seen changes to their asset strategy which de-risk their scheme and capture opportunities.

"Schemes without formal triggers can, of course, reap the same benefits, but they need procedures in place both to spot the opportunity and then to react and execute.  Many an opportunity has been lost by the time a group of trustees has convened a meeting, discussed what to do and then figured out how to do it."

Paul McGlone continued:
"But simply too many schemes haven't had the discussion about how they might react. It's not just that they have failed to agree a strategy for reacting to opportunities – many haven't even thought about it.  For example, the Aon Hewitt Global Pension Risk Survey earlier this year flagged that 40% of schemes still have no strategy for hedging interest rates and inflation.  With so many schemes ready to take advantage of opportunities when they arise, schemes with no strategy are always going to be at the back of the queue, and wondering why they missed the boat again."

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 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.