LONDON (3 November 2015) – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has called upon the Department for Work and Pensions (DWP) to allow pensioner members of defined benefit (DB) schemes to have access to similar freedoms to those now available to members of defined contribution (DC) schemes under the government’s Freedom and Choice measures, and also to the proposed secondary annuity market.

Aon Hewitt is asking for legislation which would permit a pensioner in a DB plan to be able to surrender future increases attaching to that pension (both statutory and non-statutory increases) in return for:

-    a taxable cash sum
-    an increased non-increasing pension
-    another type of increasing pension
-    or a mixture of these, as agreed between the member and the trustees of the scheme
Any alternative benefit should be certified by the scheme actuary, for example on the basis of the cash equivalent approach, which gives a best estimate of the value of the benefits being exchanged. Legislation would enable trustees to offer these options to members, subject to employer consent.

Kevin Wesbroom, senior partner at Aon Hewitt, said:
“While many DB schemes have adopted Pension Increase Exchange exercises which give pensioners an opportunity to reshape their pension income, we believe that DB members should have the full range of options in relation to the increases attaching to their pensions. Members could choose to retain the inflation protection they have on their pension, or an immediate cash lump sum (taxable at their marginal rate) or a higher current income. We believe this would give members the option to take benefits that suit their personal circumstances.

“This thinking is fully in line with the Freedom and Choice agenda – but with the added protection for DB members that they cannot touch their basic level of DB pension. Taking out the inflation proofing element – with its complex caps and collars and references to different measures of inflation - would enable trustees and employers to finance benefits more efficiently.”

Aon Hewitt tested this concept in a poll at the recent PLSA conference in Manchester.

Matthew Arends, partner at Aon Hewitt, said:
“We asked an audience of pensions professionals if they agreed that pensioners should have the right to transfer or have access to their DB benefits. Nearly three-quarters of them supported the idea of greater flexibility for pensioners – giving a very clear indication that the industry would support a move to greater personal freedom and responsibility for DB pensioners.”

Ben Roe, partner and head of Liability Management at Aon Hewitt, said:
“This has the potential to be a win-win-win position. Some members would enjoy extra flexibility and opportunities, rather than being forced into the straightjacket of a single pension type. Employers and trustees will find this could have a positive effect on long-term financing plans, as well as making the task of investment and hedging of pensions easier and hence cheaper. And the taxman is likely to gain from the acceleration of tax receipts.”

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