LONDON  –    26 July 2005  –  Rebates paid to individuals who contract out of the State Second Pension should double with effect from 2007 according to new figures from Aon Consulting, a leading pensions, benefits and HR consulting firm. *

At present many people choose not to contract out of the State Second Pension because the rebates are not sufficient to replace the pension benefits that they are giving up. With the next review of the rebates due next year (which will set the rebates for the five year period starting in April 2007) Aon Consulting has calculated what the rebates should be, if they were calculated on the basis that applies to private sector UK pensions.

Paul McGlone, Principal and Actuary at Aon Consulting, commented, “UK Pension Schemes are increasingly being forced to reserve more for the guarantees which they provide.  This means not only standing behind their promises, but setting aside sufficient money to properly fund for them.  Forthcoming changes are expected to lead to schemes also placing a higher value on individual benefits when members want to transfer their benefits elsewhere.  Applying this same logic to the amount of money which the Government offers to individuals who contract out of the State Scheme would mean large increases in the rebates which are provided to individuals.”

Since the previous review in 2001/02 the Government and the Pensions Industry has undergone significant change on the nature of a pension and how the value of a pension should be assessed.  The emphasis, heavily driven by the Government, is now much more on the fact that a pension promise should be a guarantee, and that the money set aside should reflect those guarantees.

Increasing the rebates to reflect the nature of the guarantee being given up could reverse the decline in the number of individuals contracting out of the state pension and help the Government to pass the responsibility for pension saving back to individuals, as part of their drive to reduce state pension provision to 40 per cent of overall provision compared to about 60 per cent currently.  However, such increases would have considerable cost implications.

Research carried out by Aon shows the current rebates for Occupational Money Purchase Schemes compared to those required if the calculations were performed using the rules likely to apply to private sector UK pension schemes – illustrating a huge increase in rebates.  Similar increases apply to the rebates for other types of scheme.

McGlone continued: “The total value of rebates in the UK is currently around £11bn.  To increase the rebates to a level which reflects the value of the guarantee being given up would more than double this figure.  To the extent that more people contract out as a result of the higher rebates, the cost to the Government could be even higher.  However, this additional cost would result in savings for the Government in future, as if more people have private pensions then this will not only save the Government the cost of the State Second Pension but will also reduce the amount of Pension Credit it has to pay.”




Notes to Editors



* Since 1978 the Government has allowed individuals the opportunity to ‘contract out’ of the second tier state pension in exchange for a ‘rebate’ of their national insurance contributions which they are then free to invest in their own pension plan.  However, since the introduction of the concept in 1978, the rebates have been reducing and continue to do so. This has resulted in the number of individuals contracting out of the state scheme falling, as the rebates are not sufficient to replace the pension which is being given up.

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

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.