Delivering Better Retirement Outcomes Through Scale and Strategy

Intro:
Hello and welcome to this episode of On Aon.
For millions of people, defined contribution pension plans now sit at the heart of their retirement. But for employers, the stakes have never been higher.
Aon’s CEO of Human Capital, Byron Beebe, is joined by a team of Aon leaders to break down what’s changing — and why pooled multi-employer plans, sharper governance and better member engagement can help more people retire with confidence.
Here’s Byron to kick off the discussion...

Byron Beebe:
Hello and welcome to this On Aon podcast. My name is Byron Beebe. I'm the chief executive officer of Aon's Human Capital Solutions business. And today we'll be discussing how employers are rethinking their responsibilities in respect to retirement planning and examining the evolving DC strategies to deliver improved financial outcomes for employees' retirement.

To help me do this, I'm joined by three Aon colleagues, each of them representing our DC plan solutions business in different parts of the world.

Helen Hatt, a partner in our international wealth business is responsible for United Pensions, our European multi-employer plan serving European and multinational clients.
Brian Abshire is a DC investment expert in our North American defined contribution business with responsibility for setting investment strategy for our North American DC clients.
And Nigel Aston is an experienced DC consultant and part of our team delivering on the Aon Master Trust in the UK.

Thanks for joining me today and let me set the scene for our discussion.
I think most people know that defined benefit plans used to be the main source of retirement income for employees around the world. And that's really changed quite a lot.

Really defined contribution plans are the main source of retirement income for employees around the world these days. And that means more of the responsibility for retirement savings is being pushed to the employees. And when we talk to employees about this, some of them feel empowered by this and some of them are scared by this. And over half of employees feel like they really have to count on their employers to still train them and provide vehicles for them to help them save. And when we talk to employers, they agree with that. Over 80% of employers agree that they should provide financial training and financial education. And I think when we think about this overall problem, employer by employer, that's a really hard thing for a single employer to do. They're trying to run the business. They've got people in various jobs there that are trying to keep the train running from an organizational perspective and to take time out and to spend time picking retirement investment options and training and educating members is a really difficult thing for them to do.

So over the last several years, pooled plans, collective plans, master trusts, they're called different things in various parts of the world, but these vehicles have popped up to really help employers with that and to put professionals who do this every day in the middle of this discussion.

And so the folks that I just mentioned, as I did introductions here, work on pooled plan arrangements here at Aon, where we help employers provide access to employees, to institutional savings. We help with membership engagement, and we really are trying to provide better financial outcomes.

And so I want to spend a little bit of time today talking about how those programs work. So with that as sort of background, Helen, let me bring you in here and just maybe ask you a general question about what are you hearing from Aon's clients about how they're sort of addressing these issues?

Helen Hatt:
Thanks, Byron. Yeah, and these are big issues and employers aren't necessarily wanting to throw more money at these plans to get better retirement outcomes. They just want the plans themselves to work in a better way. They need the investment performance to be strong and they need that communication, as you were saying, to really engage employees to help drive employee savings behavior to be better, to look long-term in the future.

So, employers are really looking to design plans that support better investment strategies to get that performance, plans that use really intelligent communication structures so that they target the right information to the right people at the right time to encourage them to take the right decisions, to give them that education that they need, and to really have financial wellbeing resources attached.

And what we're seeing is that's making employers rethink how they deliver plans at the moment to see how they can get more scale to get better strategies into their investment options to streamline the governance. Governance is another massive part of this. It's really difficult for employers to meet the governance requirements that legislation is pushing on them now. So they're looking to find how they can deliver that in the best way. Typically, these kinds of plans are not core business for our clients, and they want to be focusing on core business and not focusing on how to upskill to deliver a retirement plan.

So, we're really seeing them rethink how they go about this and that's definitely driving a trend away from that single employer plan structure that we used to see where they have to bolt on all of these different pieces to their plan they have in place and keep trying to develop it. And moving into multi-employer plans and pooled asset solutions where they have all of that inbuilt. They have all the expertise within that. They have the technology that can target the right people with the right financial education and on top of that.

I mean there's huge benefits from that in-country multi-employer perspective, but we also see an enormous amount of interest in multi-country solutions. Our cross-border plan, where we can take that multi-employer perspective and really amplify it across potentially all EU countries and deliver those benefits from one plan. We also have the ability to scale that globally and bring in other countries as well. And you can see the benefits of that potentially from a scale perspective around accessing better investment options, but also accessing the technology that's needed to deliver in the right way.

Byron Beebe:
Thank you, Helen. You talked a little bit about multi-employer plans and how they've become a more common. Nigel works with our UK Master Trust, as I said before, which is really a market where these multi-employer plans are more mature. So Nigel, as you think about the maturity of the market, as employers are approaching the market today to help make decisions on which of those programs is going to be right for their employees and how they help employees work through them, can you give me a sense for how employers are thinking about that market? What types of questions you typically get asked?

Nigel Aston:
Yeah, thanks Byron. So when we talk to employers, clients, about what they're really looking for with regard to giving their employees, their people, happy, long and above all dignified retirement when they get to that point, there's really two components.

Most of the market participants will do most of the core things pretty well. And that's things like administration, it's things like governance and so on.

But the two core elements which will give people better outcomes are these. And this is what employers are looking for. The first is to give members more money. That's down to investment. And then the second is to help those employees, the participants in the plan, make good decisions with that money, either in the saving phase or in the fun phase, as I call it, the spending phase once they're no longer in work. So helping them make good decisions, helping them avoid bad choices. And that's down to communication and engagement.

Byron Beebe:
Yeah, thanks. I agree with you and thank you for bringing in the importance of the investment decisions. Brian, I'm going to come to you here in a minute.

Aon just released some research which included insights from 500 employers and 2 million employees and 250 billion in assets. So it's pretty deep research. And one of the things we see in that research is that employers are looking for a way to provide institutional wealth management sort of techniques and strategies and make that available to individual employees. So as you think about investment strategy for these multi-employer arrangements, maybe talk a little bit about how we're approaching that and how you talk to clients about the benefits of that.

Brian Abshire:
Yeah, thanks, Byron. You said something great there, like the scale, the investment strategy and how we can align with what Helen, Nigel, others were saying of getting more money into the plan without a plan sponsor writing a check. So be recognized, that's going to be the primary goal with people living longer, as you said, and having to do it on their own. Those are the two balancing acts here of: they have to do it on their own, but we still want these sophisticated investment outcomes.

And so how do you do that? You have to bring things together in a sophisticated way that gives you access to an investment structure that can close the gap and give them more money into retirement to meet those needs, to meet that growing life expectancy. So what are the key themes that help you achieve that goal?

Governance, centralizing it, having individuals who do this as their full-time job. When we think about plan sponsors globally their full-time job, they don't get as excited on a podcast talking about retirement income and distribution enhancements as we do, because we do this for a living, right? This is our drive. This is our motivation.

So we can spend the time and the focus through that centralized governance process, bringing in specialized investment options that can focus on accessing parts of the market that traditionally aren't in retirement plans that are maybe standalone, don't have the scale.

Speaking of scale, right? The scale from both the administration and the investment side help reduce costs. And when we talked about multiple times and increasing the investment outcome, one of the only ways to do that with certainty is bringing down the cost, right? You lower the fees, you're going to compound that benefit over time and put more money in a participant's account. But that scale also gives you access to things from liquidity side from bringing in non-traditional asset classes.

I know one of the things that we're going to talk about today is private markets and the benefits there. And really all of this scale gives you the opportunity to access those parts of the markets.

I'd also say the traditional side of the markets as well. When we think about standalone equity or fixed income options. When you're building a pooled plan, you're able to put managers together that complement each other. And we think about standalone plans for single plan sponsors. And they're generally going to put an investment strategy that may be a single investment manager in there, but in a pooled environment, you may be able to compliment strategies together that perform in different ways in different market environments.

And we see that the global markets are ever-changing and being able to put strategies in there that can perform better throughout different market environments really help fuel not only better returns but better risk managed returns.

So there's a lot of opportunity there from the scaling that gives us that ability to close any gaps that may exist and exceed them so that people can retire the way they want to.

Nigel Aston:
Can I dive in from a UK perspective? Because that really resonated with me and in the UK there's a huge government-led push for ensuring value for money for members of plans, multi-employer plans particularly. And a big part of that, exactly as Brian was saying, is about net risk-adjusted return. And in the UK there's some information, some research which came out just last week actually, which is really pertinent to this. Being in a top performing default fund rather than a poor one is the single biggest influence on good retirement outcomes.

So as a rule of thumb, 1% extra performance per year over a whole career of saving, that'll double your retirement benefits. But the difference that we're seeing in this independent research from last week was that over the last 10 years, the top performing fund actually delivered an annualized performance which was double that of the bottom one. It was something like 12% a year rather than 6% of the year.

So the actual difference on final, put simply how much money you've got to enjoy your retirement, it's multiple times doubling it. And being in a good performing fund rather than a poor performing fund is just so important for members, participants.

Byron Beebe:
Yeah, thanks for bringing that up because these pooled plans do provide scale and access, but you still have to provide performance as well. That's a really important part of the process here. And I know we take that really seriously, but to your point, that can be a pretty big difference between a 12% and a 6% return over somebody's career for sure.

Helen Hatt:
And just to jump in there, actually. Thinking about that globally, every country has a different approach to retirement plans. They have a different financing structure, different investment approaches. And I think that's a really powerful point that in countries where there's already a well-developed framework, we can make a big difference. Now then take that to countries where actually they're still culturally, they invest in very low-risk funds or they invest in just capital guarantee funds or funds with guaranteed returns that are extremely low and they don't necessarily have the options to choose a growth fund.

Whereas our employers, our clients that we're working with really have global strategies typically to try and access that growth and unlock it during the early years of someone's career. And so we're taking that as a solution that has all that sophistication around investment to these countries and allowing them to invest in the same way.

It's really powerful and really makes a huge difference to their investment outcomes or their retirement outcomes.

Byron Beebe:
I think these pooled plans have been around for a while and as they get more sophisticated, we're trying to provide more access to more different kinds of vehicles to employees so that they can take advantage of excess return if they can find it. And Brian, that leads me to private markets.

Private markets have been in the news, adding alternative investments to defined contribution programs is something that I think has been talked about for a long time and in various parts of the world, I think we're starting to see that. So maybe talk a little bit about how you see this market developing, Brian, as we get more information from regulators and employers are asking that question a little bit more often around what we can do to enhance investment performance.

Brian Abshire:
Yeah, private markets. It's interesting because I think depending upon where someone is sitting, when they listen to this, their reaction to private markets is very different in retirement plans. Right?

So there are certain markets where the idea of putting private markets in is more new, exciting. As you said, there's regulatory evolution that's providing and facilitating a framework to putting it in.

And there's other people sitting in a seat going, of course you have private markets and retirement plans. We've had that for a long time. And earlier there was this conversation around the different maturity courses that pooled plans are at different phases globally. I would say private markets is the exact same way. And the markets that have deployed these already have learned from the benefits of pooled plans and how that structure and scale helps put private markets in.

When we say private markets, especially for those sitting in an area where they don't have as much exposure today, we're thinking about private real estate, infrastructure, private equity, private credit or debt. And these asset classes really move the needle. And what do I mean by that? So when we think about getting returns that Nigel said earlier around significantly above what other strategies may be able to get you, private markets can move the needle.

And it's difficult to do in a plan that doesn't have the scale and the liquidity to be able to deploy that. Also being able to use the private markets and as I mentioned earlier with the traditional public market strategies in a complimentary way. So different private market managers being put together, giving you access to different strategies that perform differently across markets. But I think the important benefit to take away from it is the enhanced outcome, right? The enhanced return, the enhanced risk adjusted return and the ability to access it through a pooled plan that you couldn't get on a standalone basis.

We are excited about private markets at Aon and the ability to enhance those outcomes through it is something that really is a tailwind to where we want to take pooled plans. And we're seeing it, as I mentioned earlier, different markets at different phases. But I would say every one of those, if we fast forward and you ask me, hey, where are we going to be five, 10 years from now? It's just going to be a standard building block in a significant way in the pooled plans because it's one of the key benefits.

Nigel Aston:
Yeah, I've seen that absolutely in the UK and Europe as well. I think to your point, Brian, we'll look back in five, maybe 10 years and say, why did it take us so long to put private markets into DC? If you look around the world, there's actually more money in private markets invested than there is in listed markets. So, it's a huge universe of exciting sub-asset classes and opportunities, which for technical reasons, largely, have not been available to us and now they are and it's... Yeah, you used the word exciting. It really is.

Brian Abshire:
Yeah. And it's not just access for access sake, right? Cause I think for the North American folks, especially in in the U S listening to this, you think about polarizing view, right? Not just from a private market standpoint, but it feels like everything is polarizing these days, but specifically to private markets, it's become polarized that we just want to get access to this because it's going to be a unique thing that sounds different or maybe it costs more and generates more revenue from investment managers.

And I think it's incumbent upon us as an industry to really pound the table and say, it's not access for access sake, it's access because it moves the needle and it truly gives a diversified return enhancing potential.

So I know that's one of my passions is trying to ensure that we are using that opportunity to really pound the table and say, this is something that can change retirement plans when it becomes the status quo, which I truly believe it will be.

Byron Beebe:
Yeah, thanks guys. I totally agree with all of this and providing access to better potential investment returns is really important. But for a long time, I think, in Defined Contribution Plans, we've also had a challenge with engagement. So we can do all the cool things we want to do to add things to the investment portfolio and make things accessible for employees, but employees still have to act on that. Nigel, maybe let me turn to you and talk a little bit about member engagement, like how do we get people to fight the tendency to sort of just let things ride and actually help them take responsibility for their financial future to really study and learn about the investment options that are available to them and then act on that. So how do you see us working with employers to do that?

Nigel Aston:
So yeah, it's a great question and I've done lots of work, not just in the UK, but around the world, Australia, in the US for a while and across Europe. And I think that people are generally the same wherever you go around the world. And I think as far as engagement in pensions is concerned, they really can be separated or segmented into three different groups. And I think the smart multi-employer plans and therefore the smart clients as well, recognize that and meet the needs of those three categories.

So the first are those who are happy to find and pay for independent advice. They have a trusted advisor in the same way that they might have a trusted doctor, dentist, hairdresser, whatever it may be. The second group of people are those who are happy to do it by themselves largely, but they want support and they don't just want information. And I certainly don't think they want educating about this, but they need guardrails. They need personalized guidance pertinent to themselves so they can make the decisions. And that might be modeling tools. It might be AI. We can talk a little bit about that more later, if you like.

And then there's the third group, which is perhaps the largest one, particularly in the UK. Those are the people who either have little interest in pensions until they get to retirement, or they don't necessarily want to learn about it.

They're very happy to leave it to the experts. And that's all about defaults. It's all about smart investments, but also smart, easily understood options at the critical points of people's career. When they join an employer, when they leave an employer, when they retire, but also when perhaps personal circumstances dictate that they need to think about things differently.

And again, the best education programs are largely delivered digitally, but they are personalized, they're timely, and they give people the information that they need at the point they need it rather than anything else. And that's where we're seeing the biggest success where good plans and supportive employers really work together.

Byron Beebe:
Thank you, Nigel. That's really interesting. I know, Helen, you work with a multi-country sort pan-European program. So as you think about engaging members, does that look different in various parts of the world or just anything different you would say in addition to what Nigel said about member engagement?

Helen Hatt:
Yeah, I think engagement levels, in my experience, they can differ from country to country. It depends how much people rely on the state plan because state benefits are at varying levels in different countries. We know they're all challenged, but in certain countries, people just are totally disengaged from their employer plan because they expect to be covered by the state. I think that a key point, so when we're looking at a plan that is multi-country, a really important part is language. It's making sure that actually all those communication materials and the member website is available in local language so people can connect with it very easily and making sure that the messages are going to resonate with employees and people in that country.

So I think that is really important. Also with a multi-country plan like apps and everything has to be online because different time zones, people need to be able to access that as and when they want to.

So I think that's probably been the biggest change for me is actually when you're looking at an international plan and a global plan, language is key and it's just respectful really to communicate with people in their own language.

Byron Beebe:
Yeah, it's time for us to wrap up here. I'd really like to thank all of you for your comments here. I think this has been a valuable discussion. I'm really proud of the way Aon is working with employers and employees to attack this challenge of retirement savings. This world that we live in. We really are interested in bringing the best outcomes for the individual employees that are in these programs. And we work hard to do that every day.

So thanks again for the work that you do every day. Thanks again for joining me on the podcast. And I hope some of this information was helpful to people who are listening in. And if you have more questions about multi-employer plans or pool of plans, please feel free to reach out to your local Aon contacts and they'd be happy to put you in touch with the right people. Thank you again.

Outro:
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Disclaimer:
This podcast is provided for informational and educational purposes only and does not constitute an offer, solicitation, or recommendation to buy or sell any security, strategy, or investment product. The views and opinions expressed are those of the speakers as of the date of recording and may change without notice. The information discussed is not intended as a complete analysis of any market, strategy, or investment approach and should not be relied upon as investment, legal, tax, or other professional advice. Listeners should consult their own professional advisers before making any decisions. Statements regarding potential benefits, expected outcomes, accessing certain asset classes (including private markets), or improvements in retirement outcomes are forward looking and not guaranteed. Actual results may differ materially based on market conditions, participant behavior, implementation, and other factors. References to diversification, scale, or asset allocation strategies do not ensure a profit or protect against loss. Aon plc is a global professional services firm, and services are provided by its affiliates and subsidiaries. For the purposes of this podcast, references to “Aon” refer to the Aon affiliates that provide investment advisory services in relevant jurisdictions, as the context requires.