London – 1 April 2005 –  Employers operating defined contribution (DC) pension schemes face increased risk of employee litigation if they fail to address the new pensions legislation, which comes into force this week, according to Aon Consulting, a leading pensions, benefits and HR consulting firm. The warning stems from research conducted by Aon Consulting which shows that nearly three quarters of UK employers (73%) believe that their employees were less than fully aware of the need to maintain their pension scheme to provide for their retirement.   

The research was conducted among 75 companies providing defined contribution¹ pension schemes.  It revealed that even though every respondent ranked clear and understandable communication as a key attribute of any pension scheme, only four in ten (40%) believe that their pension scheme members receive enough information and support to allow them sufficiently to maintain and monitor their pension scheme. 

The lack of scheme/member communication – or failure of employees to realise their role in managing their own retirement – is most evident in that only one in five (19%) pension scheme members pay contributions above the minimum required levels to join the scheme.    

This lack of awareness amongst employees is of concern given that the new Pensions Act will increase the responsibilities and liabilities of companies and trustees providing pension services.

At the same time, the move to DC increases choice and decisions and hence risk for employees.  Although many defined contribution schemes are in their infancy, Aon Consulting is urging employers to take more active steps to minimise their exposure to the growing prospect of employee litigation which it predicts will result as these schemes mature, particularly in light of the growing UK compensation culture².     

Commenting on the research, Paul Macro, Head of DC at Aon Consulting said:

“The risks to the employer are two-fold: our research shows that as many as 60% of companies surveyed cast doubts over the level of employee appreciation for their occupational pension scheme.  In practice this means that employers are in danger of wasting their time and money on a staff benefit that is not fully valued.

  “More importantly, when the current generation retires, many will be disappointed by the amount of their pension because they either failed to join or delayed their joining, paid too little, or invested too conservatively. The majority will have no other option but to postpone their retirement date in order to save more.  Therein lies the danger - some employees will blame their employers for not educating them about the need to both save for retirement and actively monitor their pension scheme. In addition, employers will have to manage a workforce that may not actually want to be working. ”

Paul Bluck, Director of Aon’s Professional Risks division, added: “The failure to adequately fulfill statutory obligations, comply with legal requirements or exercise reasonable care and skill in their actions can result in considerable responsibility or sanctions for those individuals or corporate bodies involved in sponsoring and managing company pension schemes if things go wrong. Add to this the generally more litigious society in the UK and it is not difficult to see why pension trustees and employers are becoming more nervous.”

Mr Macro advised employers to act now to avoid litigation in this area by:

• Educating their employees, via varied methods of communication such as: offering access to independent financial advice; providing regular pension information workshops; and providing online access to pension projection tools;
• Monitoring the development of the overall scheme - to ensure that the communication messages are being translated into actions by employees; and
• Pre-empting any potential issues with employees by formally reviewing the scheme structure/communication materials on a regular basis.

1. There has been a steady shift in occupational pension scheme offerings over the past five years, with more and more companies closing their traditional Final Salary or Defined Benefit (DB) schemes in favour of Money Purchase or Defined Contribution pension scheme offerings.  Aon Consulting’s latest research was conducted amongst companies offering DC scheme membership to their staff.  A total of seventy five in-depth interviews were carried out amongst senior finance and HR function executives in early January 2005.   
2. UK businesses are being increasingly hampered by the costs of dealing with the UK’s burgeoning compensation culture, which in turn is diverting management resources and financial investment away from core business and revenue generating activities, according to Aon’s Blame Game Survey (July 2004).

About Aon Consulting

Aon Consulting is a leading human capital consultancy, helping organisations of every size to attract and keep the employees they need. We advise on all aspects of employment, including health-related insurance and risk; employee compensation and pensions; human resource strategy planning; job design and change management; and staff assessment and legal issues. Aon Consulting is a division of Aon, the UK’s largest insurance broker and provider of risk management services, a major force in reinsurance and the UK human capital consulting market.  Aon Consulting Limited is authorised and regulated by the Financial Services Authority.

About Aon Professional Risks
Aon Professional Risks is the specialist professional risks division for Aon in the UK. In addition we are the largest intermediary for solicitors in the UK. Major products include professional indemnity, crime insurance, directors & officers liability, counter terrorism and political risk, kidnap and ransom, pension fund trustee liability, and employee practice liability. In addition, advisory services include risk financing programmes, captives & risk purchasing groups, operational & holistic risk, finite risk transfer, capital markets, actuarial & premium funding analysis, premium computation allocation systems and database services.

About Aon

Aon Corporation (www.aon.com) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. The company employs approximately 48,000 professionals in its 500 offices in more than 120 countries.  Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

####

This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results, depending on a variety of factors.  Potential factors that could impact results include the general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, exchange rates, rating agency actions, resolution of pending regulatory investigations and related issues, including those related to compensation arrangements with underwriters, pension funding, ultimate paid claims may be different from actuarial estimates and actuarial estimates may change over time, changes in commercial property and casualty markets and commercial premium rates, the competitive environment, the actual costs of resolution of contingent liabilities and other loss contingencies, and the heightened level of potential errors and omissions liability arising from placements of complex policies and sophisticated reinsurance arrangements in an insurance market in which insurer reserves are under pressure.  Further information concerning the Company and its business, including factors that potentially could materially affect the Company’s financial results, is contained in the Company’s filings with the Securities and Exchange Commission.

Aon Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only.