LONDON, 15 January 2021 – Aon plc (NYSE: AON), a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that the Pensions Regulator’s (TPR) approach to long-term targets, outlined in its newly released interim consultation, will increase the financial pressure on scheme sponsors.
Matthew Arends, partner and head of UK Retirement Policy at Aon, said:
“This is, of course, a very challenging time for many companies and with every possibility that economic conditions may get worse, so for TPR not to recognise the extra financial commitment it is expecting companies to make, will be tough news for many.
“While it’s positive that TPR is taking on board the comments made by the industry in response to the first consultation, I am disappointed that in its interim response it has not called out one of our key concerns with the first consultation - the additional costs on UK plc arising from TPR’s intended approach to long-term targets. This arises because TPR expects all schemes (whether they adopt Fast Track or Bespoke compliance) to reach their long-term target by a fixed date – which will depend on each scheme’s maturity.”
Matthew Arends continued:
“The consequence of this, is that the scheme sponsor will need to make extra contributions if investment underperformance occurs. That will be the only way they have available to get back on track for the target date - and it represents a commitment most sponsors do not currently have.
"Corporate cashflows are finite, so additional cash to meet long-term pension targets means less available to spend on employees and investment in the business. Conceivably, this might mean less is available for DC savings for employees, as a result of having to support a fixed long-term target date for DB pensions. Is that inter-generationally responsible?”
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