Management Consulting
Aon
Full Credential Description
Aon's 2022 UK DC Pension Scheme and Financial Wellbeing Survey revealed significant challenges faced by UK defined contribution (DC) schemes, particularly in their investment approaches. The survey, which included 109 schemes with over half a million members and £35 billion in assets, indicated that only 30% of these schemes regularly monitor individual fund performance as experienced by members. In contrast, a staggering 90% focus on performance against market indices. Furthermore, only 15% of schemes assess performance against tailored objectives aimed at achieving favorable outcomes for members. This highlights a critical gap in how schemes are managing member investments and outcomes. To address these issues, Aon proposed a tailored solution that emphasizes the need for DC schemes to shift their focus from merely tracking market performance to targeting specific retirement outcomes for their members. By setting clear targets for the default investment options, schemes can better understand whether they are delivering satisfactory results for their members. This approach encourages a more proactive management of DC member savings, moving away from traditional lifestyle strategies that may not adequately respond to market conditions or member progress. The survey also highlighted the growing importance of Environmental, Social, and Governance (ESG) criteria in investment decisions. Aon found that 42% of schemes now evaluate all investment options against ESG standards, a significant increase from just 10% two years prior. However, only 15% of schemes incorporate ESG considerations into their default strategies, which is crucial for reaching the majority of members who typically opt for default options. Aon advocates for integrating ESG factors into these strategies to align with the increasing public demand for responsible investing. Additionally, the survey addressed the rising inflation rates and their potential impact on investment strategies. Aon suggested that trustees and scheme sponsors need to reassess their default strategies in light of this new volatility, particularly considering the sensitivity of fixed-income assets to inflation. By returning to foundational principles and clearly defining their objectives, trustees can better navigate these challenges and enhance the effectiveness of their investment strategies for members. Overall, Aon's insights from the survey underscore the necessity for DC schemes to refine their investment approaches, incorporate ESG considerations, and adapt to changing economic conditions to ensure better outcomes for their members.