Management Consulting

Aon identified that many defined contribution (DC) pension schemes in the UK were underestimating the impact of gilt market volatility, which could adversely affect member outcomes. The volatility in gilt yields had garnered attention primarily for defined benefit schemes, leaving DC schemes and their members less scrutinized. This situation underscored the necessity for DC schemes to reassess their default investment strategies and enhance the support provided to members as they approach retirement. Jit Parekh, a partner in Aon's DC team, highlighted the potential severe consequences of gilt market volatility, particularly when members crystallize their retirement pots during unfavorable market conditions. He noted that a significant portion of DC schemes still relied heavily on UK gilts, especially as members neared retirement. Over the past three years, those with the highest allocations to UK gilts could have faced maximum losses of up to 40% if they accessed their savings at the wrong time. This risk emphasized the critical need for schemes to diversify their investment strategies and consider the implications of interest rate sensitivity on member outcomes. To address these challenges, Aon collaborated with various schemes to identify and mitigate key risks throughout the member journey. They recognized the importance of supporting members leading up to retirement and actively assisted clients in enhancing their retirement communications and support systems. By adopting a member-centric approach, Aon aimed to improve decision-making at retirement, ultimately helping clients navigate the complexities of market volatility and its effects on retirement savings.