LONDON, 18 June 2008 - Aon Consulting, a leading pension, benefits and HR consulting firm, has today launched a market-leading annuity service designed to tackle concern that pensioners could be losing up to 30% on the value of their pension pot because of ill-advised retirement decisions. This equates to around £360 million in lost value every year.
Buying an annuity is one of the most important decisions a UK worker with a DC pension will ever make. However there are current worrying trends that show lack of understanding of retirement needs from scheme members and possible apathy. Indeed, the Pensions Regulator recently identified "poor decisions on retirement choices" as the main risk area of pension schemes. A third of retirees simply accept the general default annuity, whilst 60% just opt for a single life, flat rate annuity. With the difference between the best and worst annuity rates sometimes ranging up to 30%, lack of member knowledge and professional advice is a key concern.
In response to this major concern, Aon Consulting has developed the "Aon Annuity Finder" to give employers peace of mind that its pension scheme members are being professionally assisted with their retirement decisions. Based on individual member details and requirements, the web-based service provides accurate quotes from most leading annuity providers within seconds. The service also includes access to a helpline manned by qualified and experienced annuity consultants to handle questions from scheme members and guide them through the annuity options.
A major error made by members is under estimating their own mortality assumption. The majority of members choose a non-increasing annuity in order to get a higher income initially as there are no "bells and whistles" to pay for. The assumption they make is that they will not live long enough to see the indexation on their pension income outstrip the higher starting income on a non-increasing pension. The reality, of course, is that many members do live longer and, inflation, as is currently being experienced, can erode the real value of their income and result in an index-linked pension income overtaking a non-increasing pension sooner.
Over 70% of scheme members also believe single life annuities to be most attractive. This means that, on the pensioner's death, the annuity dies with them. This may be appropriate if the pensioner is single at the time of death or if they have a spouse with their own pension provision. However, there is a danger that members are choosing single life as a means of maximising immediate income (often in conjunction with a non-increasing rate), risk leaving any surviving spouse who may be dependant on them with nothing.
Spearheading the new "Aon Annuity Finder" service is Helen Dowsey, principal in the benefit solutions division of Aon Consulting. She commented:
"Buying the right annuity is one of the most crucial financial decisions for DC members and in today's environment we are already seeing implications of bad decision making when it comes to annuity purchase. Current rising inflation could erode the purchasing power of pensioners by 20%, specifically those 60% of retirees who simply opted for the cheapest option of buying into a fixed rate annuity.
"Having paid employer contributions and encouraged member engagement whilst the employee has been part of a company, it is equally critical that businesses ensure that members are making the best possible retirement decisions. Given Aon's role in advising employer and trustees, it was a logical step for us to develop this annuity service for members. Having helped employers and trustees maintain healthy pension schemes, it is important that members are able to then benefit from the right type of annuity that suits their needs and maximises the value of the pension they have been saving for throughout their working life. We believe to achieve this they must have access to the best professional advice."
Access to the Aon Annuity Finder is not restricted to Aon Consulting clients. It can be used by any company – regardless of size or sector.
For more information contact
Leo Wood / Josephine Corbett
0207 269 7137 / 250
firstname.lastname@example.org / email@example.com
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, one of the UK's largest insurance brokers and providers of risk management services and a major force in reinsurance and the UK human capital consulting market. Aon Consulting Limited is authorised and regulated by the Financial Services Authority.
Aon Corporation (NYSE:AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 36,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was named the world's best broker by Euromoney magazine's 2008 Insurance Survey. Aon also was ranked by A.M. Best as the number one global insurance brokerage in 2007 based on brokerage revenues, and voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 by the readers of Business Insurance. For more information on Aon, log onto www.aon.com.
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