Results from first global report of its kind reinforce principles critical to long-term risk mitigation and improving funding status of pension plans
CHICAGO, LONDON and TORONTO, March 8 -- Aon Consulting, the global human capital organization of Aon Corporation (NYSE: AON) today issued its survey of top global financial services organizations that provide pension risk management products and solutions to plan sponsors in the UK, U.S., and Canada. Results show that 58 percent claim interest rates as the biggest issue facing Defined Benefit (DB) pension plan sponsors between now and 2013, followed by longevity risk (21 percent), equity markets (15 percent) and inflation (6 percent).
The survey reveals that UK DB plan sponsors appear to be further along in implementing innovative solutions to key issues than their counterparts in the U.S. and Canada. Moreover, outside of interest rates, respondents note longevity and equity market risks as the two most difficult risks to mitigate and remove (see chart below for an overview of the regional breakdown).
"Historically, the risk management products and solutions available to plan sponsors in the UK have been more advanced than those in the U.S. and Canadian markets," says Brendan George, senior vice president and global survey lead. "However, recent advancements in the U.S. and Canadian insurance and fund management industries give plan sponsors in North America sufficient choice today.
"Overall, current DB plan governance structures do not support rapid implementation of new strategies, and the tendency has been for plan sponsors to take on risk in order to improve their funded position. However, improving funded status is dependent on increasing long-term interest rates and strong global equity markets."
Survey results equally emphasize three key guiding principles, to which pension plan sponsors must pay close attention: (a) diligence of measuring and monitoring all risk types, (b) setting asset mix and investment structure suitable to plan design and individual needs, and (c) having solid skills and knowledge of risk management best practices—a telling factor that reveals how many large multinationals recognize the growing need for plan sponsors and trustees to remain extremely well versed and educated in the complexities of pension risk management.
Key similarities and differences among pension risk management markets in the three regions:
U.S. U.K. Canada
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Most commonly offered risk
- Interest rates 60% 67% 73%
- Equity markets 70% 60% 44%
- Inflation 50% 67% 50%
- Longevity 20% 33% 6%
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Most important risk for plan Interest Interest Interest
sponsors rates rates rates
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Most challenging risk to manage markets Longevity longevity
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Two areas of risk management with rates and Longevity rates and
greatest expected increase in equity and equity
demand in the next three years markets inflation markets
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To review details and access the complete findings of Aon's 2010 Pension Risk Management Global Survey, visit http://www.aon.ca/pubs/PRPS/Pension-Risk-microsite.html.
Aon Consulting Canada conducted this survey of pension risk management product providers, including insurers, banks and investment managers from around the world.
Aon Corporation (NYSE: AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 36,000 colleagues worldwide, Aon readily delivers 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 through more than 500 offices in more than 120 countries. Named the world's best broker by Euromoney magazine's 2008 and 2009 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's largest 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 brokerage revenues in 2007, 2008, and 2009, and Aon was voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm in 2007, 2008 and 2009 by the readers of Business Insurance. For more information on Aon, log on to http://www.aon.com.
About Aon Consulting
Aon Consulting is among the top global human capital consulting firms, with more than 6,300 professionals in 229 offices worldwide. The firm works with organizations to improve business performance and shape the workplace of the future through employee benefits, talent management and rewards strategies and solutions. Aon Consulting was named the best employee benefit consulting firm by the readers of Business Insurance magazine in 2006, 2007, 2008 and 2009. For more information on Aon Consulting, please visit http://www.aon.com/human-capital-consulting.
About Aon Consulting Canada
Aon Consulting is one of Canada's leading integrated human capital consulting and outsourcing firms. Our more than 800 Canadian professionals in 12 offices coast-to-coast offer benefits, talent management and rewards strategies and solutions to help clients attract, retain and develop world-class talent. Driven by inspired and independent thinking, Aon Consulting is committed to delivering innovative and personalized business solutions with tangible value to help clients shape their organization into the workplace of the future. For more information, visit http://aon.ca.