United Kingdom

Aon’s Global Pension Risk Survey finds liability management on the rise as schemes mature

85% of schemes likely to implement a flexible retirement option as long-term goals get closer


LONDON (October 2019) - Aon, (NYSE:AON) a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that results from its Global Pension Risk Survey 2019 show a staggering change in attitudes towards the implementation of liability management.

The 2019 edition of Aon’s Global Pension Risk Survey – which has run every two years for over a decade - charts the actions, plans and concerns of UK defined benefit (DB) pension schemes. There were 170 respondents to the UK survey, representing schemes of a broad range of sizes from less than 500 members to over 10,000 members.

The survey reveals that almost two in three (65%) DB schemes in the UK are now closed to future accrual, up from 45% in 2015 and 53% in 2017.

Alongside the higher proportion of closed schemes, there has been a significant increase in the acceptance of and enthusiasm for member option exercises, illustrated by the finding that only 15% of schemes say that they are unlikely to implement a flexible retirement option.

Ben Roe, senior partner and head of the Member Options team at Aon, said: “Member options, or liability management has come a long way since 2013 when 74% of schemes declared they were unlikely to implement a flexible retirement option, this has now fallen to just 15% of schemes who are unlikely to implement this option. This year’s survey showed that 53% of schemes are considering running an enhanced transfer value exercise -a huge change in sentiment over a short period of time and especially in an area which has been viewed negatively in the past.

“As schemes mature these exercises are gaining more acceptance and traction among trustee boards. More than half of the activity we see in this area is now instigated by trustees, in comparison to 2013 when it was almost entirely initiated by the scheme’s sponsoring company. Indeed, trustees increasingly regard a flexible retirement option as good governance, giving members better appreciation of the available at-retirement options and providing improved support. All of this is also having the secondary benefit of aiding the pursuit of funding improvements or risk reduction and helping to accelerate the scheme’s overall de-risking journey.”

Managing DB risk

The first chapter of the Global Pension Risk Survey looks at schemes’ long-term targets, with findings that show that a larger than ever proportion of schemes have buyout as their long-term goal. In that context, appetite to hedge longevity risk is also continuing to grow among schemes of all shapes and sizes. The survey results show that 49% of schemes plan to make use of annuities or longevity swaps, up from 36% in 2017, with 76% of those schemes either already starting to do so or intending to do so in next five years.

Martin Bird, senior partner and head of Risk Settlement at Aon, said:
“Maturing schemes naturally benefit from moving closer to and being more able to afford full scheme buyout. This, underpinned by funding improvements, lower risk investment portfolios and attractive insurance market pricing, has been a key reason why buyout as a long-term target has become a mainstream goal.”

The increased focus on buyout as a long-term target also means that it is monitored more often. Two years ago, two-thirds of respondents said that they monitored the buyout cost of their scheme only annually or even less frequently

Martin Bird continued:
“As financial positions improve, being within potential cheque-writing distance also helps focus the mind. The survey showed that now 40% of schemes monitor buyout positions on a more frequent basis than just annually, recognising that this might be attainable sooner than previously expected.

“Focus on that long-term target has also led to the more frequent integration of member options across settlement projects. In many cases, member option activity has been proactively adopted to help accelerate the scheme to being able to afford buyout.

“Furthermore, the current capacity of the insurance and reinsurance markets also provides a favourable environment to achieve that goal. We have already seen the completion of some very large annuity and longevity swap deals this year, as well as a continued flow of both small and medium sized deals. We expect this increase in appetite from sponsors and trustees to secure members’ benefits in full to continue - and to see more situations where member options exercises complement buyout negotiations to achieve better outcomes for all.”

You can read the chapter on Managing Benefits and Liabilities here, and the chapter on Managing DB Risk here.

Media Contact

Colin Mayes
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Anelia Fikiina
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Notes to Editors

About Aon

Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.

Aon announced in May 2018 it will retire the business unit brands of Aon Benfield and Aon Risk Solutions, which follows the retirement of the Aon Hewitt business unit brand in 2017. This move was designed to increase the rate of innovation across the firm and make it easier for colleagues to work together to bring the best of Aon to clients. Aon has five specific global solution lines: Commercial Risk Solutions, Reinsurance Solutions, Retirement Solutions, Health Solutions and Data & Analytic Services.

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Notes to editors

The Global Pension Risk Survey is Aon's survey, conducted every two years, of the defined benefit pension scheme universe. 170 respondents replied to the UK survey, representing schemes of a broad range of sizes from less than 500 members to over 10,000 members. Nearly two-thirds of respondents were trustees, with the remainder primarily being a combination of pensions managers and corporate representatives.

The survey will also be reporting in other significant DB geographies, including the US, Canada and Germany.

The UK Global Pension Risk Survey is being released in five chapters over the course of September and October 2019.