London, 20 March 2014 – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), has warned that the new flexibility to draw down defined contribution (DC) funds could lead to a further wave of employers closing defined benefit (DB) plans to future accrual.

James Patten, head of Pension Benefit Design at Aon Hewitt, said:

"Just over half of DB plans in the private sector are still open to future accrual. One of the key issues that has discouraged some employers from closing DB plans to future accrual has been the negative perception of DC provision from their workers, usually due to the need for many to buy an annuity.

"However, the announcements in yesterday's Budget will give DC a much needed face-lift – shifting the public perception of DC from 'Don't Care' to 'Delivering Choice'.  When consulting on closing DB plans and providing DC in the future, employers can now paint a more positive picture than in the past - drawing out the benefits of flexibility."

In the summer of 2013, Aon Hewitt conducted a survey on how employers would respond to the ending of contracting-out from April 2016, when National Insurance costs will typically rise by around 2.5% of the aggregate payroll for their DB members.

James Patten said:

"We already know from our research that many private sector employers are considering closing DB plans to future accrual ahead of April 2016 when contracting-out ends and National Insurance Contributions rise. Indeed, more are considering this than any other option for addressing the cost increase. The Budget announcement will surely lead to even more employers calling time on DB.

"Of course, moving away from DB to DC is still not without challenges. Affected employees may not relish the need to think through their investment options and how they may draw their DC funds – even with financial guidance this could be a daunting prospect. In addition, it is far from straightforward for individuals to predict what retirement might bring in a DC arrangement."

James Patten continued:

"Most of all though, the Budget announcement was a surprise, particularly given that the Department for Work & Pensions (DWP) had been working with industry on middle ground, Defined Ambition, proposals for over a year. We urge the DWP to take urgent action if they wish employers when dealing with the end of contracting-out, to consider the Defined Ambition proposals, such as removing statutory pension increases and Collective DC, as viable alternatives to DC. These arrangements will still have an important role to play, typically offering more predictable and stable benefits for individuals than DC - and without the need for individuals to make complex financial decisions."

Media Contacts:  
Colin Mayes                                           Giles Abbott
Aon Hewitt                                              Capital MSL
01372 733689                                          020 3219 8805
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 66,000 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.