Flexibility on retirement benefits may offer cashflow saving opportunities
LONDON (28 May 2020) – Aon plc (NYSE: AON), a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that the COVID-19 crisis is making companies worldwide face tough decisions on how they finance pension benefits when challenged with reducing cash outflow.
As the economic consequences of the pandemic start to be felt, many global employers are looking for ways to protect their cashflow. As well as looking to cut different categories of costs, a number of these employers across all sectors are starting to look for savings in longer-term employee benefits such as their global retirement plans.
Paul Bonser, senior partner, Retirement Solutions at Aon, said:
“For most multi-national companies, pensions represent the biggest component of their employee benefits expenditure. With a global recession looming – along with the sudden impact of the current crisis that companies are facing – some CFOs are finding themselves forced to look at measures which they would not normally countenance.
“Aon has surveyed its employee benefits consultants worldwide to get a view across the measures that multi-national companies are starting to contemplate – or in some cases have already put in place – as well as the flexibility that is available to them.”
Aon’s research among its own consultants revealed that there is significant flexibility in many countries to adjust contributions to defined contribution (DC) plans, and to adjust the funding of defined benefit (DB) plans. Some countries have already relaxed regulations in response to the crisis, and it is expected that more flexibility will be introduced in the coming months. The differences by country can also be influenced by other factors such as collective bargaining agreements. Reducing the contributions paid into global retirement plans would have longer-term consequences, but in the short term could help protect companies and their employees.
Paul Bonser continued:
“It’s very clear that maintaining cashflow is dominating the thinking of CFOs and that they are therefore looking at their global retirement plans and the flexibilities these could present.
“It’s the companies with good governance structures in place and clear data on their global DB and DC plans that are well placed to take quick and decisive action. This could offer them additional cashflow and cost savings at a crucial time. Whether a company actually decides to use the retirement plan savings lever is another matter – but the option can be there.”
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.
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