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UK pensions 'quality' standard requires twice 2012 minimum

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  • UK pensions 'quality' standard requires twice 2012 minimum

UK - A new pension quality mark for defined contribution (DC) schemes developed by the National Association of Pension Funds (NAPF) requires a minimum contribution of 10% with at least 6% from the employer, double the statutory minimum under the 2012 reforms.

The NAPF said research had shown that 67% of employees looking for a new job thought a Pension Quality Mark would make an employer more attractive, while 52% of employees said an independent quality mark would encourage them to join the scheme.

Seven companies have been awarded the first batch of Pension Quality Marks (PQM) based on contribution levels, communications and governance processes including investment options and a cap on charges for core funds of 1%.

They are: Marks & Spencer; Kellogg; Accenture; BG Group; IBM; Standard Life and the Royal College of Physicians. 
To qualify for the award, pension schemes must have a minimum contribution level of 10% of which 6% must come from the employer, however if the contributions are 15% with at least 10% from the employer then the company can apply for a Pension Quality Mark PLUS.

The minimum levels are calculated using a definition of pensionable pay which "must be 80% of total pay for at least 90% of employees", and the awards are open to any employer with a DC scheme that meets the three criteria, including occupational DC, group personal pensions, group stakeholder and from 2012 personal accounts.

The NAPF pointed out, however, that the minimum contribution criteria for the standard award is twice the 2012 minimum employer contribution of 3%, from a total of 8%, and in the case of the Pension Quality Mark PLUS the standard is more than three times the minimum. 

Nigel Peaple, director of policy at the NAPF, said while the contribution requirements are materially above the future statutory minimum they are "also a step towards the Pensions Commission's ideal level of saving".

The Commission, which published its recommendations for pensions reform in 2006 including the idea of auto-enrolment and personal accounts, suggested people should be saving with the aim of achieving a replacement rate of 60-70% of their salary in retirement.

But Peaple warned if people save for 40 years at the statutory minimum of 8%, as suggested under the current reforms, this is estimated to produce a replacement rate of 43%, while a scheme eligible for the PQM has a rate of 50% and the PQM+ is nearing the Pensions Commission target with a rate of around 60%.

He added based on the NAPF's membership it is believed "one in three schemes have the potential to get the PQM award and one in six can achieve the PQM+ level". 

The NAPF confirmed the eligibility criteria takes account of issues such as salary sacrifice, specific age and service related contributions and even non-contributory schemes, and added the award is given to a scheme in conjunction with a particular employer in an effort to avoid problems arising from multi-employer schemes or firms with multiple pension funds with different rates. 

The PQMs, which are awarded by an executive with the help of an advisory panel in complex cases, cost a one-off assessment fee of £250 and an annual licence fee for the use of the logo of £250-500, depending on the size of the pension scheme.

They will be awarded on an annual basis, to provide flexibility to adapt to new governance or contribution requirements, and there will also be a monitoring process to ensure schemes remain compliant. This includes audits, spot checks and a whistle-blowing element.

Joanne Segars, chief executive of the NAPF, said the PQM initiative "shows these employers' commitment to encouraging their staff to save for retirement, which is becoming ever more vital".

Lynn Collins, head of corporate pensions at M&S and member of the PQM advisory panel, claimed the PQM would "give us an edge over our competitors and it makes sound business sense. We always try to be competitive and offer great benefits and this pension scheme is a good example of our approach to reward".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email

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