Hope yet for AonHewitt

I oughtn’t to like Aon. Weirdly I do;- but in the kind of way that google likes the Encyclopedia Brittanica.

Aon is an American owned consultancy that feeds the insatiable maw of Man United, it is becoming a fiduciary manager and will no-doubt launch a master trust in 2015. I’m sure that there are those within that organisation who believe these activities are building the brand in the right direction – I cannot hold it against them that they are so misguided.

But so long as it continues to employ great chums such as Andy Cox, Kevin Wesbroom, Anne Swift and Nigel Featherstone, some in quite senior positions, I cannot speak ill of them.

Evidence of their continued good intentions emerged earlier in the month with the publication of “In a brave new pensions world what will DC members really want?” a short but admirable research paper produced in conjunction with YouGov and Cass Business School.

Andy (red raw) Cox, in his foreword to the paper reminds us that for all the talk of the impact of Pensions Freedoms on employers, trustees and product providers …”at the centre of this are …members”.

“Clearly, attitudes among scheme members have reached a significant turning point and it is one to which we all must respond”.

Anyone who hasn’t worked for a large actuarial consultancy or for their clients might be surprised that Aon find this surprising. But anyone who has will not find it surprising at all.

In the great scheme of funding valuations, de-risking exercises and the switch from a DB to DC funded workforce, the attitudes of members has been rather low on the priority list.

So it is to the great credit of AonHewitt (the best bit of Aon) to sponsor Sophia Singleton and Andrew Clare to produce this report and to share it here. I think you have to jump through a few hoops to get to the nuggets, so in the spirit of Wiki-Leaks, here are the key findings (complete with Tapper comment in green)

DC members have grasped the harsh realities of the 21st century pension environment

A pension of two thirds now seems to be dead- long live one third

Later and phased retirement looks to be the new norm

( this despite members having being sold the dream that DC was an adequate replacement for DB)

The majority of DC members want an “annuity-like”pension product but not necessarily an annuity.

DC members do not seem to value flexibility in retirement income that highly

Fears about people cashing in their pension pots under the new regulations and “blowing” the cash in the first few years are exaggerated.

“A one size fits all” DC solution may not be achievable, or even desirable.

Employers should consider providing members with tools to help them manage their approach to , and life after, retirement. (my elegiac father pointed out that the for someone in retirement, the next life event is death)

Employers and trustees should consider how they con provide education and guidance to these scheme members that wish to continue to invest their pension savings after retirement.

We must forgive Aon Hewitt their parochialism. Most employers don’t have schemes and it’s time we started talking as a nation about workplace pensions (whether they are sponsored by Unilever or Unit 11 of the industrial estate).

The problem that AonHewitt will have going forward is bound up in the title of the paper. In this new world, there will be no DC or DB members, there will just be people with pension freedoms which can or cannot be exercised (yet).

People with DB benefits will , as a matter of course , want to compare the benefits they’d get under “scheme rules” with the benefits they can get by exercising their pension freedoms. Pretty well everyone- other than those in unfunded tax-payer sponsored schemes, will want a transfer value, if only to work out they’d be better off where they are.

The new kind of pensions (which look like but cannot call themselves annuities) sound remarkably what I’ve been calling for as CDC pensions and I wouldn’t be at all surprised, once we get to 2016 (when CDC is built) that members of DB schemes are tempted with the alternative of bigger CDC pensions which look like DB (without the guarantee).

I’m not sure how far down the line Andy,Anne,Jan,Sophia Kevin and the rest of the AonHewitt gang in their thinking. Because they live in “big-scheme land”, thinking about ..

how they con provide education and guidance to these scheme members that wish to continue to invest their pension savings after retirement.

..may not be as easy as it is for people like me who don’t live in big scheme land.

AonHewitt have been pretty good about letting me and my friend Derek come along to their CDC seminars and we have one client where we provide this financial education and they provide actuarial services to the scheme.

Perhaps the future is for well meaning but creaking old institutions like AonHewitt to team up with the likes of First Actuarial in the spirit of the Pension Play Pen. With their client bank and research budget and our enthusiasm and nimble athleticism, there could be hope yet!

CASE STUDY

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