London, 2 November 2005 – 88% of UK companies feel that their closed defined benefit (DB) scheme is a significant financial concern that is likely to be around for several years to come.  However, whilst these schemes are of increasing concern, 32% of finance directors still feel that too much time is being spent managing these schemes.  This is according to recent research from Aon Consulting, a leading pension, benefits and HR consulting firm, who surveyed 130 UK companies operating DB schemes that are closed to new entrants.

Closer scrutiny of how DB schemes are being managed is leading to an increasing amount of pressure being placed on pension fund managers and trustees to show that they are managing their schemes pro-actively and efficiently.  As this pressure mounts, Aon’s research also highlighted a growing divide between trustees and employers, with a third of respondents believing that the two parties’ interests have become ‘less aligned’ following the closure of the scheme.  In addition nearly half (47%) believe that the trustees’ interest in their organisation’s financial performance has increased since the closure of the scheme.

Paul Belok, Principal & Actuary at Aon Consulting, said: “There is no question that DB schemes are causing a major financial headache for companies.  The pressure of meeting employee benefit guarantees, managing the scheme’s risks and ensuring compliance with the myriad of new regulations is becoming ever more onerous, and we expect organisations will start looking at the time spent on what is increasingly a legacy issue.

“It is not surprising that many respondents believe there is too much time spent managing their DB scheme, particularly given the multitude of changes occurring at the current time. This perception is magnified when the scheme is closed and it is classified as a legacy issue. In light of this, organisations should consider where their resources are best applied.”

As schemes seek to cope with the ever-expanding compliance burden, trustees are also under increasing pressure to ensure that they fulfil their fiduciary duty to protect members’ benefits. With the new pensions regulator tilting the funding playing field more in favour of trustees, empowering them to take an active role in understanding the sponsoring employer’s financial position, trustees are flexing their powers to veto decisions that they do not deem to be in the interest of scheme members – which has been demonstrated through a number of failed mergers and acquisitions in recent months. In these instances would-be buyers – as in the case relating to WH Smith – refused to meet trustee demands for significant guarantees or capital injections into the schemes.

Belok added: ”The stage is set for scheme funding discussions, in particular, to become more adversarial than has been the case to date. How this plays out in practice will depend to a large extent on guidance from the Regulator and how he deals with any cases referred to him for arbitration.

“What trustees and companies need to concentrate on is how they are going to manage their DB schemes long-term to help ensure there are no nasty shocks along the way.  It is vital that organisations put in place a road map so that they can understand where they’re trying to get to, how they’re going to achieve this and how long it’s likely to take. This can then form a framework against which the scheme can be managed into the future and reduce the pressure on both pension managers and trustees.”

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 second largest insurance broker and provider 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.

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 53,000 professionals in its 600 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.
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