OREANDA-NEWS. Aon Hewitt, the global talent, retirement and health solutions business of Aon plc (NYSE:AON), has said that more employers are making significant changes to benefits as the full effect of pressures, including the cessation of contracting-out from April 2016, become evident. A recent survey of over 80 Aon Hewitt private sector clients showed a 7% increase from last year in the number that were making changes that go further than purely mitigating costs.

James Patten, head of Pension Benefit Design at Aon Hewitt, said:
"From April 2016, employers with defined benefit (DB) pension schemes with ongoing accrual will see their National Insurance bills rise by around 2.5% of their DB payroll. The recent update to our survey shows that the proportion of schemes seeking to make changes that go beyond just offsetting the additional National Insurance costs has risen from 22% to 29%.

“In the majority of cases, closure to DB accrual is heavily under consideration. We expect to see a surge in the number of schemes in the private sector that are closed to DB accrual - from around 50% at present to 60% - over the next year. This should perhaps be no surprise as employers are also taking on board the impact of the current low bond yield environment that has typically led to a 20% rise in the cost of ongoing DB benefits over the last year.”

James Patten continued:
“But we are seeing distinct contrasts in the market. Our survey also showed an increase in employers who are making no changes to their pension arrangements in response to the end of contracting-out. We believe that this is where the DB population now represents only a minority of those organisations’ workforces or, alternatively, that they have got ahead of the game and already made changes to their scheme.”

Aon Hewitt warns that the ending of contracting-out has still not been fully considered by a number of companies.

James Patten said:
“With many employers having understandably focused on the new Freedom and Choice in Pensions, the cessation of contracting-out has been a sleeping giant, with 17% of schemes still saying that they haven’t reached a view on how to deal with the issue.

“With this potential for a delayed effect, we believe more of these employers will make changes to their benefit terms as the impact of low bond yields on the cost of DB benefits becomes more apparent. However, employers now need to move quickly if they wish to offset the rise in National Insurance costs from April 2016.”