United Kingdom

Liability management and member options

Liability management exercises can be an effective tool to help trustees and pension scheme sponsors to:

  • Reduce pension risk
  • Accelerate the time to achieve pension stability
  • Provide members with more choice and flexibility about how they receive benefits
  • Achieve cost savings against key funding and accounting measures

This is an area where the landscape has changed dramatically in recent years:

  • In 2012 a Code of Good Practice was released, setting out standards governing the way in which incentive exercises should be carried out.
  • The 2014 Budget provided the most radical overhaul of the UK pension landscape for over a decade. Members with defined benefit pensions have the option to transfer their benefits to a defined contribution arrangement to take advantage of the new flexibility.

As a result liability management exercises are now more mainstream – the Aon Hewitt 2015 Global Risk survey shows that over 40% of clients have already implemented or likely to implement a liability management exercise over the next two years.

The main liability management exercises which could be considered are:

  • Pension Increase Exchange (PIE): Involves members exchanging a pension subject to future inflation linked increases for a higher level of pension that will not increase in the future.
  • Enhanced transfer value (ETV): Involves offering enhancements to a member’s standard transfer value to encourage them to transfer their benefits out of the scheme .
  • Flexible Retirement Offer (FRO): Members who are over age 55 and entitled to take early retirement are offered a standard or enhanced transfer value which is used to take as cash, enter into drawdown or used to purchase a higher level pension from an insurance company.
    To educate members on the flexible retirement options available we can offer a sophisticated interactive online modeller: Aon Retirement Options Model.
    The modeller:
    • Helps members make informed decisions
    • Reduces IFA costs
    • Leads to greater cost reduction and risk reduction for pension schemes
  • Trivial commutation exercises: Members with small pension benefits are offered a cash lump sum instead of a small monthly pension.

Why Aon Hewitt?

We focus on advising on the right solution for you and pride ourselves on giving only the highest quality advice and support.

  • We have a dedicated Specialist Liability Management Team with over 40 dedicated liability management experts, including communication specialists and project managers.
  • Helped more than 100 clients assess the feasibility of liability management exercises.
  • Implemented bulk exercises and introducing at retirement options for more than 50 clients which improves the options available to more than 100,000 members.
  • Represented the Institute and Faculty of Actuaries on the Steering Group which was responsible for the new Code of Good Practice for Incentive exercises.

For more information please contact Ben Roe (tel: +44 1727 888286 or email: benjamin.roe@aonhewitt.com)



Aon Hewitt Limited is authorised and regulated by the Financial Conduct Authority.

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