Media room

Press releases—August 2015

U.S. Specialty Pharmacy Costs Increases Expected to Jump to 23% (27 August 2015)
U.S. Organizations Report Highest Compensation Spend in 39 Years (26 August 2015)
Aon Hewitt says new guidance from the Pensions Regulator provides welcome advice on convenant issues (13 August 2015)
Aon Hewitt says Just Retirement and Partnership merger may not drive up bulk annuity prices (11 August 2015)
Aon Hewitt Global Pension Risk Survey 2015 shows no let up for UK schemes (3 August 2015)


U.S Specialty Pharmacy Costs Increases Expected to Jump to 23%


Aon Survey Shows Double-Digit Pharmacy Cost Increases; Stable Medical Trend
 

LINCOLNSHIRE, Ill., August 27, 2015 – A new survey of 60 leading health care vendors by Aon plc (NYSE: AON) shows that pharmacy trends are expected to continue in the double digits, with specialty pharmacy trends experiencing the most significant increases. The survey represents expected cost increases before plan or benefit changes for medical and pharmacy policies that carriers are renewing in 2015.
 

Pharmacy cost trends, including specialty drugs, are expected to increase 10 percent, up from 6.3 percent in the prior year. When separating out specialty pharmacy drugs, estimated cost trends have jumped to a whopping 22.7 percent in 2015, up from an18.2 percent increase in 2014.
 

“There is a robust pipeline of specialty drugs, which is contributing to the dramatic spike we see in cost trend,” said John Malley, leader of Aon Health’s Innovation Pharmacy Team. “Oncology drugs have been filling the pipeline and will be the largest category of specialty drug approvals in the near future. Specialty drugs for cholesterol may also have a significant impact, given that the market has not had this type of drug for such a prevalent disease state before.”
 

Medical trend expectations moderate

While pharmacy rate increases continue to rise significantly, carriers are expecting moderate medical cost increases. Trends used by vendors for projecting year-over-year increases in medical plan costs range from 7.0 percent to 7.6 percent in 2015, compared to 7.7 percent to 9.0 percent in 2014.
 

“Carriers continue to see price inflation as the single largest driver of increased medical costs, but an aging population, unhealthy lifestyle choices and provider consolidation are also contributing to the trend increase,’ said Tim Nimmer, global chief actuary for Aon Health. “As a result, employers are still gravitating toward managing year-to-year cost increases while keeping an eye on the near future to understand what new tools may be applicable to their specific workforces as a means to reduce health care spend.”

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U.S. Organizations Report Highest Compensation Spend in 39 Years

Variable Pay Drives Record Spending; Companies Controlling Fixed Costs
 

LINCOLNSHIRE, Ill., Aug. 26, 2015 /PRNewswire/ -- Research from Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE: AON), shows total compensation and spending for U.S. employees reached a record high of 15.8 percent in 2015, with the majority of funds allocated toward variable pay, such as incentives, bonuses and cash awards.
 

According to Aon Hewitt's 2015 U.S. Salary Increase Survey of 1,214 organizations, salaried exempt workers will see base pay rise by 2.9 percent and variable pay increase by 12.9 percent in 2015. By comparison, total compensation and spending budgets for salaried exempt employees was 11.4 percent in 1996, with 3.9 percent accounting for salary and 7.5 percent accounting for bonuses.
 

"Organizations are under immense pressure to keep costs in line to remain competitive, and as a result, we are seeing more than 90 percent of companies shifting more of their spending to variable pay because this type of strategy enables them to recognize and reward performance without growing their fixed cost," said Ken Abosch, broad-based compensation practice leader, Aon Hewitt. "Pay is a top engagement driver for employees, and as the market continues to improve, organizations will need to differentiate through variable pay programs to attract and retain top talent."
 

Base Pay Increases

Aon Hewitt's survey projects that pay increases will continue to modestly increase in 2016. Pay increases for salaried exempt employees are expected to be 3.0 percent up from 2.9 percent in 2015, but nearly a full percentage point lower than what was observed two decades ago.
 

"The modest increases we've seen over the past 20 years are an indication that employers have changed their compensation strategies for good, and we shouldn't expect to see salary increases revert back to 4 percent or higher levels that were commonplace in the past," said Abosch.
 

2016 Salary Increase and Variable Pay Projections by City

According to Aon Hewitt's survey, workers in some U.S. cities can expect to see salary increases higher than the national average in 2016. These cities include Washington, D.C. (3.8 percent), Dallas (3.5 percent), Minneapolis (3.3 percent), and Columbus, Houston and Seattle (3.2 percent). Salary increases in 2016 are expected to be lower than national average in Kansas City (2.7 percent), Rochester (2.9 percent) and Philadelphia and Charlotte (2.8 percent).

Similar to the national average, projected pay spend on variable pay for 2016 shows record highs, particularly in Houston (16.5 percent), Boston (16.1 percent) and Minneapolis (13.0 percent).
 

Salary Increases by Industry

Industries likely to see the highest salary increases in 2016 include telecommunications (3.4 percent); mining/milling (3.4 percent); insurance (3.2 percent) and automotive (3.2 percent). Industries with the lowest increases are projected to be energy (2.4 percent); education (2.5 percent); health care (2.6 percent); and forest and paper products/packaging (2.6 percent).
 

"The level of rewards that industries are able to offer employees vary widely and are typically based on competitive pressures and company performance," said Abosch. "For example, companies in the automotive industry are better positioned to offer above average salary increases because of growing consumer demand and recent manufacturing efficiencies and productivity improvements. On the other hand, organizations in the energy sector have been seriously impacted by the falling cost of oil and are therefore forced to keep fixed costs at a minimum."
 

About the Survey
Aon Hewitt's 2015 U.S. Salary Increase Survey represents the 39th annual study focusing on overall changes in employee compensation for the calendar year 2015 and current projections for 2016. Information was collected during June and July. Visit globalcompensation.net for more information.
 

Further information

For further information, please contact the Aon Hewitt PR team:

Roxanne Pipitone, 847-442-1317 or
Maurissa Kanter, 847-442-0952


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Aon Hewitt says new guidance from the Pensions Regulator provides welcome advice on convenant issues

LONDON, August 13, 2015 - Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has said that new guidance issued by the Pensions Regulator today offers welcome clarification on a number of issues related to employer covenant. The guidance, which is focused on assessing and monitoring the employer covenant of pension schemes, consolidates and updates much of the formal and informal guidance on covenant that the Regulator has issued over the past few years.

Aidan O’Mahony, partner at Aon Hewitt said “While there is nothing radical in this update, there is an increased emphasis on taking an integrated approach to managing scheme risks - which is looking at covenant, funding and investment risks in a holistic manner. This is something we very much welcome.”

The guidance covers the Regulator’s new statutory objective around ‘sustainable growth’ and notes that any investment costs associated with growth should be shared across all stakeholders, with trustees protecting the pension scheme against downside risk. There is also more detail on how to analyse non-associated multi-employer schemes and not-for-profit employers.

Aidan O’Mahony continued: “This guidance provides very useful checklists for trustees and advisors with more than 20 worked examples of assessing covenant in different situations. The guidance also brings clarity around when and how trustees should look to commission external covenant advice. Overall, this will help trustees, employers and covenant advisors to identify and analyse the key covenant risks.”

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Aon Hewitt says Just Retirement and Partnership merger may not drive up bulk annuity prices

LONDON, August 11, 2015 – Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has commented on the merger, announced this morning, of Just Retirement and Partnership, and on its potential effect on the bulk annuity market.

John Baines, principal consultant in the Risk Settlement Group at Aon Hewitt, said: “The medically underwritten bulk annuity market has become mainstream with close to £1 billion of business written in the past 18 months. With one of the main reasons for the proposed merger between Just Retirement and Partnership being a focus on growing in the defined benefit pension market, we don’t expect that this growth trend is likely to change.

“As with any merger, there is a risk of reduced competition driving up prices. However, in this case, that risk is likely to be mitigated by the new entrants that are poised to enter the market imminently, by the increased interest of traditional insurers in using medical data to sharpen their pricing, and also by the need to retain a competitive pricing basis relative to traditional insurers.”

John Baines continued: “The view we have given when advising clients, is that there would be a reasonable chance that one or both of Just Retirement and Partnership might not remain as stand-alone insurers, given their size and the specialist nature of the marketplace. While the timing was not necessarily expected, the focus of the combined group on enhancing the covenant ought to be good news for both existing and future policyholders.

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Aon Hewitt Global Pension Risk Survey 2015 shows no let up for UK schemes

Challenges remain but schemes are more focused than ever before

LONDON, August 3, 2015 - Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), today published the UK findings of its Global Pensions Risk Survey 2015 which show no let up in the challenges for UK pension schemes. The survey incorporates responses from 220 UK defined benefit (DB) pension schemes, representing 4.5 million members and almost £500 billion of assets.

While pension scheme funding remains a sizeable problem, the survey demonstrates significant progress in how UK pension schemes are planning for, and managing, risk:

  • 94% of UK schemes surveyed have a long-term objective, compared with 70% in 2009 (over and above being fully funded on their ongoing Technical Provisions assumptions).
  • 27% of schemes surveyed identify buyout as their long-term objective, with 65% aiming for a self-sufficiency/low risk approach.
  • The average target date for reaching their end point is around 2027.
  • Over half (53%) of schemes surveyed view their plan for reaching the long-term objective as ‘robust’.

Kevin Wesbroom, senior partner at Aon Hewitt, said:
“DB pension schemes have undergone a wholesale transformation over the past decade and they are now much better equipped to identify and manage the risks they face. The credit crisis served as a wake-up call for sponsors and trustees, driving them to clarify long-term goals and put in place robust plans for achieving them. This change in attitude and subsequent demand for solutions has meant the range of risk management tools that DB pension scheme sponsors and trustees have at their disposal has never been greater.

“Despite this, schemes still face an uphill struggle as funding positions remain woefully short of their targets in this low yield environment. The 12 year timeframe to meet the long-term objective remains consistent with our 2009 survey, despite the passage of time and six years of contributions - the future just keeps getting further away! Our survey shows that schemes are actively considering ways in which they can reduce their liabilities, particularly ahead of the end of contracting-out in April 2016.”

Diversification, dynamism, de-risking and delegation
Aon Hewitt’s Pension Risk Tracker shows that the aggregate winding–up deficit for FTSE350 company pension schemes was over £320 billion at the end of June 2015. The figures show that despite positive momentum in equity and bond markets, there is little discernible funding progress since 2009.

John Belgrove, senior partner at Aon Hewitt, said: “Over the past 10 years, many UK pension scheme sponsors and trustees have undergone a transformation in attitudes towards funding and dealing with challenging, fast-paced markets. With schemes being forced to adapt to a new reality, and develop greater clarity around long-term objectives, there is a notable shift in typical investment strategies.

“Our series of Global Pension Risk Surveys has documented a very clear trend towards 4Ds - diversification, dynamism, de-risking and delegation. Schemes continue to decrease their total equity holdings and increase allocations to lower-risk matching asset classes or LDI, driven by an appetite to control risk. Despite historically low gilt yields, de-risking showed no sign of slowing over the past 12 months and is expected to continue."

Combined with diversification into alternatives, we are now seeing pension schemes which have much lower overall risk profile. This has led to greater complexity and, often, leverage for capital efficiency purposes. In response, trustee boards have added more specialist resources and delegated further to professionals to execute strategic plans set by the trustees.

John Belgrove continued: “While becoming less tolerant of risk, pension schemes are more savvy and nimble with the remaining growth assets – using sophisticated tools and monitoring systems to stay on top of prevailing market conditions. Asset strategy is more than ever closely aligned to liability obligations, measured deficit closure and a smoother funding journey with better defined long-term objectives. Structures which allow schemes the flexibility to be opportunistic, such as delegated services, have emerged as a consistent trend. While funding levels remain challenging this more targeted and focused approach to pension fund investing bodes well for meeting their future objectives.”

Aon Hewitt’s Global Pension Risk Survey was first completed and published in 2006. It is a comprehensive and authoritative indicator of how pension schemes around the world are measuring, monitoring and planning in relation to risk.

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