United Kingdom

Aon outlines hopes and fears for UK pensions in 2022

LONDON, 7 December 2021Aon plc (NYSE: AON), a leading global professional services firm, has outlined its ‘hopes and fears’ for the UK pensions industry in 2022.

After a second year in which so much has been dominated by the COVID-19 pandemic, Matthew Arends, partner and head of UK Retirement Policy at Aon, looks ahead both to the challenges and to the reasons for optimism in the coming year.

Matthew Arends said:

“First and foremost of course is the hope for a speedy end to the pandemic – a wish that extends well beyond the world of just pensions. Even so, whatever that new environment looks like, it is still likely to leave some questions for UK pensions – and it may be that we won’t have ready answers.

“For example, while UK schemes are used to navigating new forms of volatility, it’s likely that we won’t know the full effect of the pandemic on life expectancies for a while to come. Whether life expectancies increase or reduce as a result of the pandemic could have big consequences for defined benefit (DB) scheme sponsors and for the way defined contribution (DC) scheme members make judgements about how they spend their DC savings.”

Regulatory fears

Matthew Arends said:

“It’s fair to say that regulation is always at the front of the pension industry’s collective mind. There has been a significant volume of regulatory change over the past year and we already know that will continue into 2022.

“Next year will also be the silver anniversary of some far-reaching regulatory changes. It will mark 25 years since the creation of what was originally the Occupational Pensions Regulatory Authority (OPRA) and is now the Pensions Regulator (TPR), and the same period since the implementation of the little-lamented Minimum Funding Requirement (MFR).

“My fear is that TPR’s new DB Funding Code, which is expected in 2022, will turn out to be MFR2 and we will, in effect, turn back the clock 25 years on the funding regime. TPR can avoid this by dropping its requirement to measure bespoke compliance with the new regime by reference to the new Fast Track compliance option. Fast Track - as solely a simplified compliance option for those who opt for it - has a lot of attractions and meets the stated policy aim, but not if it is also used as a yardstick for bespoke compliance.”

To endgame or not to endgame?

Matthew Arends said:

“Aon’s ‘Global Pension Risk Survey 2021/22’ flagged the clear trend that, for the first time, more UK DB pension schemes are opting for buyout as their long-term target rather than self-sufficiency - and it’s hard not to imagine that trend resulting in significant bulk annuity transaction volumes in the next 12 months. Among its other knock-on effects, this trend has sharpened schemes’ strategy generally. While more schemes are undoubtedly seeing the way to buyout as their correct course of action, for others it’s helped clarify their wish to run on a low-risk basis, either temporarily or in perpetuity, even if they could afford to buy out.”

Data dreams

Matthew Arends said:

“Always nagging away in the background and so vital to the successful execution of nearly everything, quality of data seems to become more important each year – and that will certainly continue in 2022. The task of addressing data accuracy will not look so dull if a scheme faces the nightmare of inaccurate data when it comes to complete a member options exercise, buy a bulk annuity, perform GMP equalisation and so on.

“And don’t forget that the Pension Dashboard is all about data. By the end of the year, larger schemes should know their staging date and be working towards it. Schemes which have the earliest staging dates could be close to going live, with data, infrastructure and calculations ready, and testing due to take place. The bottom line is that having better, cleaner data is key to schemes’ ability to make better decisions on their way forward.”

Talent crunch

Matthew Arends said:

“The industry is facing a growing talent crunch, which is likely to get worse before it gets better. The initiatives and exercises that are now the daily currency of schemes, demand know-how and skills that barely existed in the industry 10 years ago. They all need people with specialist knowledge to make them happen and it’s hard not to see the industry experiencing a pinch on talent and resources as more schemes move towards their endgame.

“This is not an easy problem to solve and it will affect providers, advisers and in-house teams. The industry will find it hard to hire in experience from the outside because the experience doesn’t exist anywhere else. It will take time and investment to train people to be sufficiently expert.”

CDC – a new hope

Matthew Arends said:

“Some nine years after Aon’s original white paper on Collective Defined Contribution (CDC) schemes, one big hope for 2022 is that Royal Mail‘s CDC scheme is both successfully launched and acts as a positive first mover to encourage others. There’s also the hope that the Government’s commitment to introduce regulations for other types of CDC scheme, such as master trust CDC schemes, and to provide increased flexibility for the concept, bears fruit in 2022.

“This has already been a big effort by the UK pensions industry to create something new. It’s that kind of cooperation and combined drive that can bring some real reason for optimism in 2022.”


About Aon

Aon plc (NYSE: AON) exists to shape decisions for the better - to protect and enrich the lives of people around the world. Our colleagues provide our clients in over 120 countries with advice and solutions that give them the clarity and confidence to make better decisions to protect and grow their business.

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