Aon Hewitt DC Index shows rise in retirement income

Autumn stock market gains result in another monthly increase in expected annual pension
Workers must not overlook the need to set aside money for retirement over the long-term, regardless of market conditions

LONDON - Retirement prospects for UK workers continued to improve in recent weeks with an increase in projected annual retirement income. The latest Aon Hewitt DC Index provides particularly good news for 30 year olds who have seen a £403 increase to the retirement income they can expect to receive when retiring at aged 65, growing their annual retirement income to £19,656. This news should be tempered by the fact that although an improvement for 30 year olds, the amount is still considerably less than their estimated annual retirement income of £20,307 recorded six months ago in April 2010 and £20,992 in October 2009.

The Index also reveals a small improvement to the projected retirement income that 60 and 65 year old people can expect, with their pots benefiting from marginal annual increases of £48 and £32 respectively. The Aon Hewitt DC Index shows that the gains this month are due to the continued rise in stock market values and a slight improvement in annuity rates. The monthly increases are more subdued for older members as they are assumed to only partially invest in stock market funds because of lifestyling and tolerance for risk.

The Aon Hewitt DC Index follows the projected retirement income of individuals at different ages who contribute 10% of a £25,000 salary to a defined contribution (DC) pension arrangement and have an existing fund (valued as at September 2007) of £15,000 for age 30 and £150,000 for ages 55 and above.

Retirement income projections

The projected annual retirement income of typical DC pension investors at different ages (based on data collected on 31 October 2010 compared to the previous month) is as follows:

* 30 year old: from £19,253 to £19,656 (£403 increase)
* 60 year old: from £10,643 to £10,691 (£48 increase)
* 65 year old: from £7,821 to £7,853 (£32 increase)


Chris McWilliam, senior consultant at Aon Hewitt, commented: “For the second month in a row, employees have seen a welcome boost to their retirement income. Although this is brighter news following months of gloom, it remains important for members to understand the effect that market fluctuations and the broader economic environment can have on their retirement income. Indeed, with the removal of a default retirement age, workers will appreciate that they have substantially more flexibility over both the timing and manner in which they eventually come to draw benefits. While retirement prospects are improving it is also crucial that individuals understand the need for making meaningful contributions to their pensions over an extended period of time to ensure a healthy pension pot upon retirement.”

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Aon Hewitt is the global leader in human capital consulting and outsourcing solutions. The company partners with organisations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit www.aonhewitt.com.

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Aon Corporation (NYSE:AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital solutions and outsourcing. Through its more than 59,000 colleagues worldwide, Aon unites to deliver distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon’s industry-leading global resources and technical expertise are delivered locally in over 120 countries. Named the world’s best broker by Euromoney magazine’s 2008, 2009 and 2010 Insurance Survey, Aon also ranked highest on Business Insurance’s listing of the world’s insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on revenues in 2007, 2008 and 2009, and Aon was voted best insurance intermediary 2007-2010, best reinsurance intermediary 2006-2010, best captives manager 2009-2010, and best employee benefits consulting firm 2007-2009 by the readers of Business Insurance. Visit http://www.aon.com for more information on Aon and http://www.aon.com/unitedin2010 to learn about Aon’s global partnership and shirt sponsorship with Manchester United.

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