In its Pensions Bill, due later this week, the Government is expected to announce its detailed plans for a Pensions Protection Fund (PPF) to pick up pensions of employers who go bust. Aon Consulting, a leading pensions adviser, says that:

• The cost of this protection, met by a levy on employers who run defined benefit pension schemes, is likely to impose a further burden on employers already struggling to keep their own pension schemes afloat.
• The Government may be seriously underestimating the amount of finance needed to maintain the PPF and employer levies may fall well short.

Aon Consulting's latest researchı into the UK's Defined Benefit (DB) scheme market has found that to fully insure companies pension scheme risks for all DB schemes in the UK would cost around £ 260bn more than is currently invested in such schemes. This is twice the estimated total FRS17 deficit figure of approximately £ 130bn stated under FRS17 rules on company balance sheets.

Paul McGlone, Principal at Aon Consulting, said: "FRS17 accounting rules are based on the costs of financing benefits through the company's pension scheme. However, the PPF will need to secure benefits through insurance company policies, which are far more costly. Which assumptions the Government uses will affect the PPF levy quite significantly. For instance, if the Government were to use the FRS17 accounting figures to estimate the PPF levy then it is likely to produce an initial levy that is only half the amount the PPF actually needs.

"If the financial upkeep of the PPF turns out to be much higher than the government estimates, this will result in a further pressure on those employers who are already stretching their finances to keep the pension promises they have>already made to employees."

Donald Duval, Head of Professional Practice at Aon Consulting,added:

"While we support the Government's efforts to protect pensions, it cannot be right to impose the costs of this protection solely on those employers who are doing the right thing and providing decent pensions for their workers. The rising cost of DB pension provision has already forced most employers to convert to Defined Contribution (DC) schemes. This will simply accelerate that trend."

Note to Editors:
1. Aon Consulting's FRS17 research into 200 large UK companies - covering 50% of the market value of assets of all UK Defined Benefit schemes, including all FTSE 100 companies - found that from December 2002 to December 2003 deficits rose from £ 57bn to £ 66bn (or from £ 114bn to £ 132bn for all UK DB schemes).

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.