LONDON, 5 March 2015 - Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has welcomed new powers to enable employers to amend their pension schemes to address the additional costs faced when contracting-out ends in April 2016. However, it warns that sponsors now need to press on with reforming their pension schemes if they intend to do so ahead of that date.

James Patten, head of Pension Benefit Design at Aon Hewitt, said:
"The newly announced regulations enable employers to amend their schemes to address the additional costs they will face when contracting-out ends in April 2016.  These override the requirements in scheme rules and potentially bypass the trustees. In practice, we expect most employers to want to work with the trustees and many will look to make changes to benefits via the scheme rules and with trustee agreement. While therefore we expect few employers to use the new regulations in practice, we are hoping that they act as a catalyst for employers to focus on this issue.

“Employers could be forgiven for thinking a year gives them plenty of time to amend their pension schemes to address cost rises of around 2.5% p.a. of their DB payroll when contracting-out ends in April 2016. However, even for those employers looking simply to increase member contribution rates to offset the cost, their employees are likely to expect plenty of notice of changes. Bear in mind that these are changes that will have a significant impact on take-home pay and may more than offset employees’ next pay rise. This, in practice, could mean the need to communicate the proposals by late summer 2015.”

In summer 2014, Aon Hewitt carried out a survey of 151 private sector organisations continuing to offer contracted-out defined benefit (DB) provision to some employees and asked them how they plan to handle the ending of contracting-out.

James Patten said:
"When we checked on schemes’ level of preparedness last summer, the indications were that around 30% of employers with ongoing DB provision may make more significant changes to pension arrangements than simply offsetting the additional costs.  This will often mean complete closure to DB accrual. The depression in bond yields seen over the last six months has significantly increased the cost of ongoing DB pension provision and we therefore expect more employers to take a step back and consider making significant changes to pension provision. These changes will often take 12 months to implement and so the clock is certainly ticking.

“Employers are sure to want to limit the amount of management time and cost spent dealing with this, in order that they can focus on the high-level strategy and on managing the key risks involved in the process. In response to this, Aon Hewitt has developed an off-the-shelf employee communication package which requires minimal tailoring to individual schemes and will help employers make decisions and communicate any changes efficiently.”

Media Contact:
Colin Mayes                                   Marina Jane Sanchez
Aon Hewitt                                      CNC Communications
01372 733689                                 020 3219 8811
colin.mayes@aonhewitt.com            marina.jane-sanchez@cnc-communications.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, 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.