London, 16 December, 2013 – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), today published its third annual UK Pension Scheme Triggers survey covering over 120 UK pension schemes, ranging from under £10 million to over £10 billion in assets. All the schemes surveyed have triggers in place to monitor either scheme funding levels or bond yields.

The research, 'Triggers during 2013', shows that UK pension scheme funding levels improved significantly during the second and third quarters of 2013, with more than 40% of schemes surveyed seeing their triggers activated by improving investment returns. These market dynamics have enabled many schemes to recover some of the losses incurred throughout 2012 and early 2013.

Aon Hewitt’s Pension Risk Tracker shows that at the beginning of January 2013, the FTSE 350 pension scheme collective deficit stood at over £400 billion, due to a combination of successive months of low gilt yields following quantitative easing, plus limited return from growth assets. By early December 2013, however, the collective deficit had reduced significantly to well under £300 billion.

Paul McGlone, partner at Aon Hewitt, said:
“2012 and early 2013 saw many pension scheme funding levels decline significantly as quantitative easing saw real gilt yields settling just under zero. Many of the schemes we surveyed in previous years were substantially 'under water' compared to where their triggers were, and needed to increase their funding position by 10% on average just to reach their next trigger level.

"However the last year, and the second and third quarters of 2013 in particular, have been more positive as UK schemes benefited from increasing gilt yields while growth assets in their portfolios also performed strongly. For many pension schemes, this has allowed them to recover their funding positions – and to start to consider opportunities for de-risking their investment strategy.”

The Aon Hewitt survey found that 20% of UK pension schemes currently have a formal trigger strategy in place – either as a monitor of funding levels or bond yields. The aim of these triggers is to prompt a trustee review of funding strategy as certain pre-agreed levels are breached.

Paul McGlone said:
“Not all schemes have a formal system of triggers in place, with some reviewing funding levels in alternative ways. The key point is that schemes need to ensure they have some way to monitor their financial health and take action if necessary. Recent guidance from The Pensions Regulator encourages schemes to look at ways of managing risk, and triggers are an excellent way of prompting important discussions among trustee boards.”

The survey makes it clear that quickness of response is vital for schemes to make the most of market opportunities.

Sion Cole, partner and head of Client Solutions in Aon Hewitt's Delegated Consulting team, said:

“Awareness and speed are critical for schemes which want to take advantage of market opportunities. We have seen that schemes with triggers have typically been swifter to respond to the improving funding environment, either removing some riskier return seeking assets from their portfolio, or looking to mitigate the risk through interest rate hedging.

“The good news is that the improvements in funding position seen in Q2 and Q3 are largely still with us and there is good reason to expect that further de-risking opportunities are likely to occur during 2014.”
 

Media Contacts:

Colin Mayes                                          Adam Leviton
Aon Hewitt                                             Capital MSL
01372 733689                                       020 3219 8810
colin.mayes@aonhewitt.com                  adam.leviton@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 retirement 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