AON PLC
NYSE:AON
Aug 18, 2014
LONDON 18 August 2014 - Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has said that with defined benefit pension schemes climbing towards healthier funding status, they should be changing their approach and diverting sponsor contributions into alternative financing strategies.
Various measures of the funding status of schemes indicate that many are now over 100% funded. A recent survey of 86 Aon Hewitt clients with recently completed funding valuations showed that 30% of them were substantially above 100% funded while 42% of them were around 100% funded on a best estimate basis. Similarly, when viewed on an accounting basis, around 25% of FTSE350 schemes are now over 100% funded.
Paul McGlone, partner at Aon Hewitt, said:
"Pension schemes are clearly not out of the woods but as they seek stability they are doing so from a position which is different to where they were just a few years ago. Funding levels have improved substantially and you can make a case that many schemes now have enough money without further deficit contributions being made. From both cash and accounting perspectives, many sponsoring companies are therefore likely to be pushing back on any demands for further deficit contributions into a scheme.
"Companies and trustees will therefore increasingly view their schemes through different lenses, as the companies see the risk of trapped surplus, while the trustees still see funding deficits because they are required to consider a prudent funding basis. Companies will want to consider reducing deficit contributions, but trustees with schemes which are still underfunded on a prudent funding basis are likely to seek other means of security for members' benefits if they are to accept the end of deficit contributions."
Lynda Whitney, partner at Aon Hewitt, said:
"As they become less keen on paying in cash we are already starting to see more companies considering alternative ways of providing that security, including escrow, charges over assets, letters of credit, surety bonds and other mechanisms. The latest Aon Hewitt survey showed that 71% of large schemes with liabilities in excess of £1 billion and 27% of schemes with liabilities under £100 million already have some form of alternative financing and we expect these proportions to grow.
"As ever with pensions, there is no one-size-fits-all but we believe that alternative financing solutions are an option that every DB pension scheme should be considering as part of their strategy to reach pensions stability."
Media Contact:
Colin Mayes Marina Jane Sanchez
Aon Hewitt Capital MSL
01372 733689 020 3219 8811
colin.mayes@aonhewitt.commarina.jane-sanchez@capitalmsl.com
Notes to editors
About the survey
Survey was based on 86 'Tranche 8' valuations recently completed by Aon Hewitt (those with valuation effective dates between 22 September 2012 and 1 May 2013.)
'Best estimate' represents the cost of providing benefits with all margins for prudence stripped out. In effect, there is a 50/50 chance that the money required will be greater or less than this amount.
About Aon Hewitt
Aon Hewitt empowers organisations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organisational and personal performance and growth, navigate risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit www.aonhewitt.com.
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About Aon
Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world's best broker, best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited to learn about Aon's global partnership with Manchester United.
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