Management Consulting

In early 2020, pension scheme sponsors and trustees in the UK faced significant challenges due to rising deficits, with FTSE 350 company schemes experiencing an estimated £40 billion increase in deficits during the first quarter. This situation was particularly pressing for schemes with valuation dates of 31 March or 6 April 2020, as their valuations would be heavily influenced by volatile market conditions. Aon identified that without proactive measures, these atypical market conditions could lead to difficult negotiations and increased pressure on UK companies. To address these issues, Aon proposed several tailored solutions for pension scheme sponsors and trustees. They recommended initiating early discussions to explore various legislative levers that could be utilized during the valuation process. These included allowing for outperformance in the Recovery Plan, which, while not necessarily compliant with the future Fast Track Funding Code, could serve as a temporary measure. Aon also suggested making use of the 15-month valuation timeline to account for post-valuation experiences and considering recovery plan structures that would accommodate short-term affordability constraints. Aon's approach emphasized the importance of pragmatic discussions between sponsors and trustees to navigate the uncertain financial landscape. They urged the Pensions Regulator (TPR) to adopt a flexible stance regarding the 2020 valuations, highlighting the need for reasonable outcomes that reflect the current market volatility. By advocating for these strategies, Aon aimed to help clients manage their pension obligations effectively while addressing immediate financial pressures.