LONDON (06 October 2016) – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has said that it is seeing increased demand from pension schemes for help in accelerating their journey to buy-out. As a result, it has brought together its capabilities in both the risk settlement and liability management fields to create a new Liability Settlement team.
More and more UK pension schemes have the ultimate objective of buying-out their liabilities with insurance company - but for a typical scheme this is likely to take upwards of 20 years. Now, many schemes are finding that by considering a combination of tactical and opportunistic settlement opportunities, committing contributions to the scheme and adopting liability management options, they can get closer to their long term objective than they may have first thought.
Martin Bird, senior partner and head of the Risk Settlement Group said:
“By combining the market experience and expertise of different units within Aon Hewitt, we have created the Liability Settlement team. This way we believe we can ensure that our pension scheme clients are able to take joined-up decisions, and gain the best advantage of both liability management and risk settlement opportunities. The impact of some of the solutions in isolation can sometimes seem small but if you add up the effect of all the different marginal gains, then the time taken to full buy-out can be greatly reduced.
“For example, with some of the opportunities we have seen in the buy-in market since the EU Referendum, it has been possible to secure pricing which is 5% better than typical pricing but this is only possible for schemes which are prepared and able to move quickly.”
Ben Roe, partner and head of the Member Options team, said:
“This is about creating a framework to help our clients assess and prioritise activities. That way, they can take a series of actions which are designed to get their schemes cleaner and to obtain the best possible price in the settlement market.
“If we look at the liability management side, historically these initiatives have been seen as a corporate tool to help reduce deficits. But we are increasingly helping our clients to look at these opportunities in the settlement framework - when you view them in this sense they can become essential steps to take on the route to buy-out.
Ben Roe continued:
“We know that the cost of securing inflation linked pension increases can be expensive. Even with standard pension increases you end up paying a premium for the caps and collars on inflation, and in some cases this can create a settlement cost which is 5% or even 10% higher than the funding cost. Offering members a PIE option not only provides them with a valuable option with more flexibility and choice over their benefits, but it can also lead to material savings on a buy-out basis. We are currently seeing take-up rates on average of over 40% and at these levels the buy-out cost reduction could be up to 10% of the liabilities in some cases.”
For further information please contact:
Colin Mayes Marina Jane Sanchez
Aon Hewitt CNC
01372 733689 020 3219 8811
Notes to Editors
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 72,000 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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