LONDON 3 November 2014 - Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), has said that pension schemes should consider escrows as a buffer to aid schemes in their search for pensions stability.

Lynda Whitney, partner at Aon Hewitt said:
"Escrows are one of the useful devices in the alternative financing toolkit. They are particularly appropriate for companies who have the cash and want to provide security for their members, but do not want it locked up in the pension scheme.”

Following on from the White Paper Aon Hewitt issued in June on self-sufficiency targets, it has now produced 'Escrow White Paper – Reconciling Stability and Surplus' which discusses how an escrow can help reach the target set and when an escrow is a particularly beneficial approach.

Despite the benefits that this alternative financing tool can provide to both pension schemes and sponsors, there are still some myths that may discourage the consideration of escrows. The key myths that Aon Hewitt has identified - and why those views are misguided - are described below.

- An escrow can only be invested in cash
Lynda Whitney said: "An escrow can be invested in a wide range of investment classes. We believe that the myth has grown up because some escrow agents only want to be responsible for a narrow range of investments. By getting the right structure to your escrow at the start, you can invest in the full range of investment classes used by pension schemes."

- An escrow will be disliked by the Pensions Regulator
Lynda Whitney said: "The Pensions Regulator encourages trustees to look through the wrapper at what security is provided by the alternative financing solution in the event of an employer collapsing. An escrow therefore causes no concerns, as long as it is invested in normal pension asset classes and appropriate due diligence is carried out."

- A scheme in deficit should not consider an escrow
Lynda Whitney said: "An escrow can have a role in either deficit management or the management of the risk of trapped surplus. In relation to a deficit, it can bridge the gap between trustees and sponsor viewpoints on pace or level of funding. In relation to the management of trapped surplus, it can bridge the gap between the sponsor's view that on a best estimate basis the scheme has sufficient funds, and the trustees' view that on a prudent basis there is still a deficit."

- An escrow is an expensive solution
Lynda Whitney said: "Setting up an escrow is relatively straightforward and cheap to do (compared with more complex solutions such as asset backed contribution vehicles), although it can still be time consuming and has fees attached to it. However, we believe costs can be managed if the key triggers are agreed as part of the integrated funding strategy, and if the sponsoring employer and trustees are willing to have a joint working party to resolve other issues pragmatically. For example, using a single legal adviser and packaged products can also help manage the cost."

Lynda Whitney concluded:
"Whether putting an escrow alongside your pension scheme is the right answer can depend on the funding position of the scheme, the tax position of the sponsor and the sponsors’ views on calls on its cash. However, escrows are one of the tools that can bridge the gap between the viewpoints of the trustees and the sponsor."
 

Media Contact:
Colin Mayes                                           Marina Jane Sanchez
Aon Hewitt                                              Capital MSL
01372 733689                                         020 3219 8811
colin.mayes@aonhewitt.com                    marina.jane-sanchez@capitalmsl.com

Notes to Editors

'Escrow White Paper – Reconciling Stability and Surplus' sets out:
• why trapped surpluses are an important consideration for schemes today
• the likelihood of trapped surpluses occurring in future
• how an escrow can work as a buffer to aid pensions stability
• when an escrow is likely to be particularly effective
• practical implementation issues of escrows

In this paper we consider escrows in all their forms including charged accounts, funding trusts or asset backed contributions through special purpose vehicles.

Email lynda.whitney@aonhewitt.com for a copy of 'Escrow White Paper – Reconciling Stability and Surplus'.

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, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited to learn about Aon’s global partnership with Manchester United.