Aon Hewitt launches first Mid-Market Pension Survey
• Lack of resources hampers medium-sized schemes from exploring de-risking options
• Three-quarters of schemes lack robust plans to meet funding targets
LONDON – Aon Hewitt (NYSE:AON), the global human resources business of Aon Corporation (NYSE:AON), has launched its first Mid-Market Pension Survey, which reveals the challenges currently faced by medium-sized pension schemes with between £10m and £500m of assets under management.
Paul McGlone, principal & actuary at Aon Hewitt said:
“This is a landmark piece of research which looks into the largest segment of the pensions market – one which has a tendency to be overlooked - despite it accounting for more than 61 percent of all pension schemes in the UK. The figures from our survey show that there is a heightened focus in the industry on the issues facing medium-sized schemes and on the specific challenges they pose to the trustees that run them and their sponsoring organisations.”
The Mid-Market Pension Survey presents industry-wide insight and provides a detailed and more tailored reference point for mid-market schemes. The survey polled over 200 schemes which:
- Combined, have over £30 billion of assets
- Represent over half a million members nationwide
The results demonstrate that the principal challenge currently facing these schemes is their lack of resource to explore the options available to help meet their long-term funding targets. The survey also highlights that the main areas of concern for mid-market schemes are the burden of external costs and the time constraints on those connected with the scheme and who have the relevant expertise to take action.
Paul McGlone, said:
“It is evident that the size of these schemes is a key influence on their ability to deal with the challenges they currently face. While resource constraints are undoubtedly limiting the actions of larger schemes as well, the effects being felt here in the mid-market are clearly more intense and could be long-lasting.”
More schemes freezing earlier
By focusing in on this specific segment of UK pensions, the survey has been able to shed more light on the status of medium-sized schemes. For example, it shows that a significantly higher proportion of mid-market schemes are now frozen (closed to future accrual), confirming previous findings by the Pensions Regulator.
Paul McGlone, continued:
“This clearly reflects the propensity for smaller schemes to take the step towards final closure earlier than larger ones. This is a finding which has perhaps been masked in national statistics which include large schemes and probably reflects these schemes’ perception that it is the only achievable option open to them.”
The Mid-Market Survey also shows that nearly all schemes have a long-term target in mind, on top of the statutory ‘Technical Provisions’ which they are required to report – only seven percent of respondents reported that they had no long-term target in place. Self-sufficiency is the aim for 48 percent of schemes, buyout for 24 percent, while 19 percent of schemes reported that they are targeting something ‘low risk but not self-sufficient.’
However, due to the lack of resources available to medium-sized schemes, many of them have yet to put in place a viable flightplan for reaching their long-term funding target. While just over a quarter of schemes surveyed said that they had a robust plan in place, around two in five said that they have only a basic plan and one-third admitted to not having any existing plan.
Paul McGlone said:
“Unfortunately, while schemes are rightly establishing their key aims, constraints on time, expertise and cost are preventing many schemes from completing their strategy. Many of them still lack the road map and means to get themselves to their optimum goal, which can only be detrimental in the long run.
“There is also a pattern which we see in other areas of the mid-market. While more than enough options exist for dealing with scheme deficits, limitations on time, money and expertise mean that not all these opportunities are being explored. Those constraints are very real, and schemes cannot simply find more money, more time or more expertise.
Paul McGlone continued:
“However, if there is a cause for optimism, it is that solutions do tend to become more accessible over time. Not so long ago, liability driven investment was a rarity for medium-sized schemes but it is now common. Options such as longevity hedging which currently appear to be the sole domain of the large scheme could soon be opened up to smaller schemes and be used to ease some of their issues.
“With that in mind, medium-sized schemes need to keep an eye on developments and seize the moment when they become viable options. In the meantime, they can ensure that they have an operational and governance model that recognises their particular constraints, makes use of the limited resources in the most efficient way, and doesn’t waste time on areas that are not a priority.”
Notes to editors:
About Aon Hewitt
Aon Hewitt is the global leader in human resource solutions. The company partners with organizations 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.
Aon Corporation (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 61,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit http://www.aon.com for more information on Aon and http://www.aon.com/manchesterunited to learn about Aon’s global partnership and shirt sponsorship with Manchester United.
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