The Pension Quality Mark (PQM) is to explore setting tough new minimum standards for the default investment funds that the vast majority of pension savers end up in.
PQM is the only benchmark to distinguish a good quality defined contribution (DC) pension and it wants to add default funds to its list of criteria that applicants and existing holders of the badge have to meet.
Default investment options are a requirement for all auto-enrolment pension schemes and PQM is concerned that people may lose out if they save into a weak default fund. 84% of savers do not actively make investment choices about their pensions and are placed in these funds automatically.
PQM standards currently focus on issues of governance, saver communications and employer contribution levels. PQM is now seeking industry views on what pension schemes should consider when setting the investment strategy for their default fund.
Options include that the governing body in a DC scheme makes regular checks on the:
• suitability of the default investment option for members, including its risk and return balance, particularly when members are approaching retirement.
• investment performance of the default fund and charges of fund managers.
• quality of communications with savers about the default fund and other investment options, and the level of participation in the default option.
• level of support available to members who are choosing not to invest in the default fund or for whom the default option may not be appropriate.
Alex Kitching, PQM Manager, said:
“PQM is the standard for best practice and it is continually evolving, both to reflect and lead market changes. Millions of workers will be automatically enrolled into pensions in the years ahead, and the overwhelming majority will end up in the default, so it is a fundamental part of the pension.
“It is essential that those who do not want to make investment decisions about their pension do not get left out or short-changed. Pension schemes must look out for their saver’s interests.
“Given the growing scale of membership in default funds, trustees, employers and providers need to focus on the better design, communication and governance of default funds.
“We would like to hear the views of the pension industry, employers and consumer groups on what factors should be considered when designing a good default fund. Our work in this area will build on the guidance developed by the Pensions Regulator and Department for Work and Pensions.”
PQM has set a deadline for responses of 20 September 2013. It plans to implement changes to the standards in April 2014.
The PQM initiative was launched by the National Association of Pension Funds (NAPF) in September 2009: The mark has been given to 181 pension schemes, and covers a third of a million active scheme members.
Notes to editors:
1. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.
2. There are two standards, PQM and PQM PLUS: Under PQM, the scheme’s total contributions must equal at least 10% of an employee’s pensionable salary, with a minimum employer contribution of 6%. Under PQM PLUS, the scheme’s total contributions must equal at least 15%, with a minimum employer contribution of 10%.
3. For further details on the Pension Quality Mark & the Friend of the Pension Quality Mark initiative: http://www.pensionqualitymark.org.uk/ and http://www.pensionqualitymark.org.uk/friendofpqm.php
Paul Platt, Head of Media and PR, NAPF, 020 7601 1717 or 07917 506 683, [email protected]
Aimee Savage Richards, Press Officer (interim), 020 7601 1718 or 07825 171 446, [email protected]