Management Consulting
Aon
Full Credential Description
One of the significant challenges faced by members of defined contribution (DC) pension schemes is understanding how much they need to save to achieve an adequate standard of living in retirement. Aon identified that many members rely heavily on the performance of the default investment strategy to grow their retirement savings, yet they often lack clarity on their savings trajectory. To address this, Aon adopted the PLSAs Retirement Living Standards, which provide benchmarks for minimum, moderate, and comfortable living standards. By targeting the moderate standard of living in their DC default solutions, Aon designed an investment strategy that aims for a long-term return of inflation-plus 4 percent per annum, tapering to inflation-plus 2 percent at retirement. In response to the fluctuating market conditions, particularly during periods of high inflation and market volatility, Aon implemented a dynamic investment approach. This included regular reviews of asset allocations to ensure alignment with their inflation-plus targets. For instance, they adjusted the balance between growth equities and bonds, increasing allocations to equities and corporate bonds while reducing exposure to long-dated index-linked gilts, which were deemed expensive. This proactive governance structure allowed Aon to manage investment risks effectively and adapt to changing market conditions, ensuring that members approaching retirement could still achieve their necessary returns. Moreover, Aon recognized the growing demand for responsible investing among scheme members. They introduced the Climate Transition Fund (CTF), which focuses on investing in companies that contribute positively to carbon reduction and renewable energy, rather than excluding entire sectors. This approach has shown promising performance, indicating that ESG-focused investments can yield competitive returns while aligning with members' values. Aons commitment to integrating ESG factors into their investment strategies reflects their understanding of the evolving expectations of pension scheme members, ensuring that they not only meet financial goals but also contribute positively to societal and environmental outcomes.