United Kingdom

Aon says UK pension schemes may be closer to their endgame than they realise

LONDON, 10 June 2021 - Aon plc (NYSE: AON), a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that UK pension schemes are increasingly focused on their endgames - which are also becoming more achievable.

Aon’s ‘Risk Settlement Survey 2021 - Journey to Settlement’ asked 120 UK pension schemes about their progress and planning towards the settlement of risk. The responses came from trustees and sponsors of schemes ranging in size from £50 million to over £1 billion.

The survey found that while 34% of schemes are now targeting buyout, that percentage is consistently increasing as schemes’ funding positions improve and as buyout becomes more attainable.

Michael Walker, associate partner in the Risk Settlement Group at Aon, said:
“The good news is that 77% of schemes are now over 80% funded on their endgame target. However, at the moment, only 26% of schemes expect to reach their endgame in less than five years. In our experience, we believe schemes may be over-estimating how long it will take to reach that target. We can understand why they might think that’s the case, but cautious forecasts can heighten the risk of missing opportunities along the journey.

“The story of the last few years is that the time taken to reach endgame targets is invariably less than expected. Therefore, trustees and sponsors need to ensure that they are fully prepared to take their next step when the opportunity arises.”

Key Findings

  • Buyout is the endgame target for 34% of schemes.
  • 77% of schemes are over 80% funded on their endgame target.
  • Only 26% of schemes expect to reach their endgame in less than five years.
  • Around 75% of schemes are at least likely to offer support for members’ retirement decision-making.
  • 32% of schemes currently assess their investment performance relative to their low risk measure or buyout cost (rather than their Technical Provisions) – a percentage Aon expects to increase as the focus of schemes switches to the endgame.
  • 40% of schemes believe they have reliable data.
  • Data cleansing activities spanning the needs of multiple projects are being considered by 54% of schemes, showing an increase in joined-up planning.

Michael Walker continued:
“Pension schemes are now almost certainly better placed in relation to their endgame than they might have expected even as few as five years ago. But they need to maintain a proactive approach to make the most of the situation. For example, it’s good to see that phased buy-ins are being used as a risk management tool by many schemes, with the majority also taking the time to understand how these transactions would impact their investment strategy.

“Similarly, it’s encouraging that support for ‘at retirement’ initiatives is both widespread and increasing. It’s just one way that schemes can deliver greater flexibility to members while simultaneously reducing risk. But the bottom line is that it’s essential for trustees and sponsors to prepare a clear strategic plan upfront. It will help them to deliver a smoother and more cost-effective journey to where they want to reach and to be ‘transaction ready’ when the moment – and pricing – arises.”

Aon’s ‘Risk Settlement Survey 2021 - Journey to Settlement’ is available at: https://www.aon.com/unitedkingdom/retirement-investment/risk-settlement/journey-to-settlement.jsp

 

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.

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Media Contact

Colin Mayes
Aon
[email protected] / +44 (0) 7801 748138

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James Hartwell
Kekst CNC
[email protected] / +44 (0)7870 487532