UK - Aon has launched a Pensions Security Indemnity product (PSI) that guarantees pensioners will receive up to 100% of their benefits should their corporate sponsor enter into insolvency, but the firm insisted it would not be competing against buy-out firms.
Targeting large corporate sponsors with heavy deficits, PSI would enable a company to pay an annual premium, calculated on a bespoke basis according to its credit risk, ensuring the financial safety of the pension scheme and allowing the company to focus its assets on its business.
"One of the biggest problems in pensions today is how to give security to pension members without causing major disruption to the finances of the sponsoring employer," stated Donald Duval, chief actuary at Aon Consulting. "This unique product helps to square that circle. It gives security to trustees and members, without tying up large amounts of the company's capital."
Described as operating in a similar way to the Letter of Credit (LOC) approved by the Pension Protection Fund (PPF), there is no upper limit to the amount Aon can insure for and the product can be put in place on fixed terms for up to 10 years. According to Aon, the 200 largest UK pension schemes had a total deficit of £46bn at the end of November.
PSI had a "soft launch" that focused on existing UK Aon clients a few months ago and Paul Campbell, product development leader, said it had received "very strong interest" from a number of UK corporations.
Although there are no immediate plans to roll this product out beyond the UK, Campbell said there was "no reason why it couldn't be structured to apply to other geographies".
Asked whether PSI would be competing with buy-out firms like Paternoster for business, Campbell stated: "This is one of a number of a number of [options] available to employers for their schemes. Clearly the buyout is a fully comprehensive solution, we're not offering a solution that's quite as comprehensive [as that]. It's an opportunity for the employer to maintain the pension scheme within the control of the company that we're offering. We are going for a niche."
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