Good quality DC pension? Don’t keep it a secret says Richard Wilson
This month the NAPF has started the hunt for the UK’s best defined contribution workplace pension schemes, with the launch of our Pension Quality Mark (PQM). The PQM will help employers demonstrate the value of their pension scheme, and by making workplace pensions more understandable and attractive, encourage more employees to join.
Earlier this year we asked employees what they thought about the idea of an independent quality mark for pensions and over half (52 per cent) said they would be more likely to join a pension scheme if it had such a mark. In addition, over two thirds (67 per cent) said that if they were looking for a new job, they would feel more favourable towards a potential employer if their pension scheme had an independent quality mark.
The launch of this new independent award is a badly needed good news story, and the PQM has received support from the pensions industry, employers, employee bodies, consumer organisations and the Pension Regulator. By the time the PQM was launched over one hundred pension schemes had already expressed an interest.
More and more employers have switched to DC pensions but there is a huge variety of provision and the NAPF has recognised there is a growing need for individuals to develop a better understanding of the DC pension offered to them. Some employers mention that many of their staff do not recognise the effort they are making to encourage and help them to save for retirement and the PQM will enable companies to strengthen this messageNow, for the first time, those employers who do offer a quality scheme will be able to get independent recognition, and employees will have an independent standard to look for. It will also help scheme members and future employees to instantly recognise that the pension they are being offered is a good one and will increase employee trust and confidence in their workplace pension, a crucial factor in itself.
The PQM has also been designed to combat the risk of levelling down when personal accounts are introduced in 2012. The NAPF has shouted long and hard that the introduction of personal accounts must not adversely affect existing good quality pension schemes and the PQM will help schemes to demonstrate the value of higher contribution levels. Any type of workplace DC pension scheme can apply for the PQM, including occupational (trust-based) schemes, GPPs and group stakeholders. To qualify for the PQM, schemes must meet three core standards of good pension provision.
Contributions must total at least 10 per cent of earnings, with a minimum of 6 per cent contributions from the employer. There is a PQM PLUS award for those with even higher contributions – 15 per cent total, with 10 per cent from the employer. All contribution arrangements are recognised, including age-related, matching, fixed, non-contributory and salary sacrifice.
Governance standards must be designed to ensure schemes are run well and meet the needs of members. Different governance arrangements are recognised (trustees, management committees and stand-alone annual scheme reviews).
Communications are required that provide employees with clear and engaging communications when they join, throughout their membership and as they approach retirement.
Employers and schemes receiving the PQM will be able to use the PQM logo on their documentation and websites, which will visually demonstrate that the pension scheme has been recognised for its quality by an independent body. PQM awardees will also have preferential access to the NAPF’s Pensionforce programme, which provides free group presentations to engage employees with their pension and financial planning.
But most of all the PQM can help employers get the best out of their pension scheme. It can help attract and retain high calibre employees, ensure employees have confidence in the pension scheme, encourage employees to save for a comfortable retirement and benchmark the scheme against competitors.
As mentioned, we have over 100 further employers who have registered an interest by the time of the launch. However, we believe there are many hundreds more pension schemes that meet the PQM standard – so this is a big search we have embarked on.
Therefore, we would urge pensions advisers and consultants to help us identify the schemes and employers that will meet the mark. If you know of a good DC pension scheme – don’t keep it a secret!