Last week, the National Association of Pension Funds (NAPF) launched the Pension Quality Mark (PQM), a new award designed to ensure that employers that offer quality defined contribution (DC) pensions get the recognition they deserve. Marks and Spencer, Kellogg’s, Accenture, Standard Life, The Royal College of Physicians, BG Group and IBM gained the first awards, with a further 100 employers registering an interest.
Over the past 10 years there has been a move away from traditional defined benefit (DB) – or final salary – schemes towards DC, or money purchase, schemes. This shift presents a different set of challenges for the HR community, particularly in terms of communication.
Many individuals moving from employers that offer a DB scheme to one offering a DC scheme, or who work for an employer switching from DB to DC, do not have a good understanding of the issues. Pensions are complicated, and the majority of employees are not confident they understand how the UK pensions system works. A NAPF survey of more than 300 HR managers found that 60% believe their employees do not understand pensions and retirement issues.
Helping to increase trust and confidence in workplace pensions is one of the reasons that we have introduced the PQM. It will be awarded to well-managed DC schemes with good member communication and high levels of contributions. It is designed to help scheme members, and future employees, to recognise that the pension they are being offered is a good one.
Despite the current economic climate, many employers remain committed to helping their staff save for their retirement, and it is often forgotten in the media that many employers continue to provide good quality DC provision. For the first time, employers will be able to visually demonstrate that their pension scheme has been recognised for its quality.
Recruitment and retention
Our research shows that the PQM will help employers recruit and retain staff. Earlier this year, the NAPF asked employees what they thought about the idea of an independent quality mark for pensions. More than half (52%) said they would be more likely to a join a pension scheme if it had such a mark. And two-thirds said that if they were looking for a new job they would look more favourably upon a potential employer if its pension scheme had an independent quality mark.
From 2012, employers will have to automatically enrol their employees into a pension scheme – either one they have established themselves or into the government’s Personal Accounts scheme. The NAPF has long argued that, while we welcome the introduction of Personal Accounts, the scheme must not adversely affect existing good quality pension provision, and that there is a risk of employers ‘levelling down’. The PQM will play a key part in ensuring that this does not happen by demonstrating the value of higher contribution levels.
Any type of workplace DC pension scheme can apply for the PQM, including occupational (trust-based) schemes, group personal pension plans and group stakeholders. To qualify for the mark, schemes must meet three core standards of good pension provision:
Contributions must total at least 10% of earnings, with a minimum of 6% contributions from the employer. There is a PQM Plus award for those with contributions totalling 15%.
Governance standards are designed to ensure schemes are run well and meet the needs of members.
Communications which provide employees with clear and engaging communications at all stages from joining the scheme to approaching retirement.
The NAPF believes there are many hundreds of schemes that meet the PQM standard, so we are urging employers, advisers and consultants to help us unearth more quality schemes and help them get the recognition they deserve for running a good DC scheme.
For more details on the PQM scheme, visit www.pensionqualitymark.org.uk