LONDON, 9 July 2015 – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has commented on the Government’s new Green Paper, ‘Strengthening the incentive to save; a consultation on pensions tax relief”, announced in the Summer Budget.

Kevin Wesbroom, senior partner at Aon Hewitt, said:
“This would appear to be a genuine consultation on whether the pension tax system needs to change, rather than how the system should be changed. But we cannot ignore the influence of the fiscal imperative to get a suitable outcome in terms of tax revenue.
“There is a big link made between tax incentives and personal responsibility – but this fails to recognise the centrality of the role of the employer in retirement savings – and their role needs to remain central if we are to see realistic levels of retirement savings in the future.”

Kevin Wesbroom continued:
“The principles guiding reform are sound – simplicity, transparency, personal responsibility and sustainability are difficult to argue with. But, as ever, the real issues are less obvious. These principles could have been applied to the last major changes, those of Pension A-Day in 2006. But it didn't take long for Pension Simplification to become Complexification, as successive measures were added, reliefs restricted or removed and the administrative burden escalated out of control.”

Engaging in pension saving
Kevin Wesbroom said:
“One of the consultation questions is whether greater engagement in pensions savings can be increased by a simpler system. We would support making the tax relief more explicit and simpler to understand for individuals; a variation of Buy One, Get One Free - where the tax relief is converted to an explicit addition to the pension pot - has a high intuitive appeal. But the price to be paid is a switch to ISA-style taxation – which gives the tax relief up and then makes the pension exempt.

“This switches the tax timing for a generation, and would have huge appeal to the Treasury. Individuals may have less confidence in trusting future governments to honour promises on maintaining the tax free nature of pension pay-outs.”

The role of the employer
Kevin Wesbroom said:
“Where do employers stand in all of this? Many provide pensions because they have to – which is the success of auto-enrolment (AE). We would support the introduction of greater flexibility here – such as the option of individuals being able to meet the AE regulations by saving into an ISA, not a pension. But many employers provide pensions because they want to support their workforce – the classic mantra of recruit, retain and retire. These employers may find the concept of broader savings more appealing - they still need their workforce to retire in an orderly fashion. Pensions have a continuing, central role to play here.”

Better planning for retirement
Kevin Wesbroom said:
“The consultation asks if an alternative system would allow individuals to plan better for their retirement. The classic response from pensions professionals is that this requires a stable pension system. But years of experience have forced us to confront the futility of this ambition. Pensions savings is a large part of the nations' capital and a big source of taxation attention. Few countries around the world have resisted the temptation for endless tinkering.

“While an independent pension commission sounds attractive – will politicians cede control over such an economically important part of the landscape, or over central issues such as how much of the national economy is spent on supporting older people?”

DC and DB differences
Kevin Wesbroom said:
“Should any new system have different rules for DB and DC? Changes to the taxation of DC pensions can be relatively simple – either having a uniform employer tax relief system, or even a move to a full blown EET ISA style of tax relief. DB pensions struggle to fit into these simple approaches and there is a case for simply ring-fencing any existing arrangements.

“The sad reality is that this would affect few in the private sector – the numbers would probably be below one million workers by the time any proposals came into force. Given a choice of huge administrative complexity do you shoe-horn DB into any new, simple, transparent and sustainable system – or simply leave it alone and let it wither on the vine? We favour the latter.”

ENDS

About Aon
Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and
reinsurance brokerage, and human resources solutions and outsourcing services. Through its more
than 69,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via
innovative risk and people solutions. For further information on our capabilities and to learn how we
empower results for clients, please visit: http://aon.mediaroom.com/

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For further information please contact:
Colin Mayes                                           Marina Jane Sanchez
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