Management Consulting
Aon
Full Credential Description
In recent years, many UK companies have begun to view their defined benefit (DB) pension schemes as potential assets rather than liabilities. This shift has been driven by improved funding levels, with over 3,750 of the approximately 5,000 DB schemes now in surplus. Despite this, the actual extraction of surplus assets has been minimal, with only about £180 million accessed between March 2018 and March 2023. Companies are increasingly considering transferring their pension scheme assets to insurers or utilizing them to enhance contributions to defined contribution schemes for current employees, thereby improving employee engagement and wellbeing. A notable case is Boots, which completed a landmark risk settlement transaction with Legal & General for £4.8 billion in 2023. This transaction was significant not only for its size but also for its implications in corporate finance and risk management. Aon acted as the strategic adviser, lead investment adviser, and transaction broker, successfully managing the complex illiquid assets within the Boots pension scheme's investment portfolio. This transaction, along with others like those of RSA and Telent, collectively involved over £15 billion in premiums and facilitated the removal of the pension scheme from Boots' balance sheet, thereby enabling a more strategic business approach. Another innovative strategy being explored is the active run-on of pension schemes, which allows companies to manage their pension schemes beyond full funding. Aon has developed a framework called ASTRO, which enables companies to build up surpluses securely. For instance, DXC Technology has opted to run on its three pension schemes, valued at £4.5 billion, allowing them to utilize surplus assets for current employee contributions. This approach has resulted in annual cash savings of approximately £19 million for DXC Technology, while also improving the overall financial health of the company. Additionally, Aon has facilitated the launch of pension captives, which allow companies to gain control over their pension scheme assets. In a recent transaction, Aon advised on the first pension captive launch in the UK since 2017, valued at £1 billion. This arrangement enables the company to manage its pension assets more effectively, potentially generating over £200 million in new cash flows over time. The pension scheme members' benefits remain insured through an external insurer, allowing for a secure wind-up of the scheme with any surplus assets being returned to the company. These strategies illustrate how companies can unlock significant balance sheet value through innovative pension management, enhancing their financial strategies and positioning themselves for sustained growth in a competitive marketplace.