About PQM Standards
1.What are the core standards?
Schemes are assessed in 3 core ares:
2.Which standards apply if my company is using a PQM READY scheme?
Your scheme will only need to comply with the contributions standard, as it will automatically meet the standards on governance and communications.
3.What is the difference between PQM and PQM PLUS?
The only difference is in contribution levels.
For PQM the contributions need to be at least 10%, with at least 6% from the employer. For PQM PLUS the contributions need to be at least 15%, with at least 10% from the employer.
4.What if my scheme has matching contributions?
What we mean by matching contributions is that there is more than one level of contributions available and the employees can choose which level they are going to be contributing at. The employer then matches their contributions.
In case of matching contributions we are looking for at least one of the levels to meet the PQM or PQM PLUS headline standard (10% or 15% total contributions). It means not all levels have to meet the standards. This level has to be available to all scheme members and has to be clearly communicated.
5.What if my scheme has age-related contributions?
In order to meet the PQM standards, actual average or notional average contributions have to meet either PQM or PQM PLUS headline standard (10% or 15% total contributions).
Actual average contributions are average contributions of the current scheme membership.
Notional average contributions are contributions of a notional (imaginary) scheme member who joins the scheme aged 22 and leaves the scheme aged 65.
If there is a matching element in your contribution structure, this should be taken into account as follows:
- Actual average - the average contributions if all actual employees selected the highest available option within their age bracket
- Notional average - the average contributions if the notional scheme member selected the highest available option throughout his/ her scheme membership
6.What if my scheme has service-related contributions or there is a nursery scheme for auto-enrolment?
Auto-enrolment rules allow a three month waiting period before employees have to join a scheme. This makes sense to employers in some sectors, so we have built this into the PQM rules.
However, a waiting period can be no longer than three months. Where schemes have service related contributions, average contributions must meet the headline contribution standard. Applicants can exclude the first three months of employment from the calculation. We expect employers to make clear in communications if some employees will not be eligible for PQM-level contributions. Finally, the employer contribution must be greater or of the same value to any employee contribution.
Where employers have a nursery scheme, where contributions are different to the main scheme, then the average contributions across both schemes must meet the headline contribution standard. As with schemes with service related contributions, the first three months of employment can be excluded from the calculation.
7.What if my scheme is non-contributory?
Where the employer contributes 10% or 15%, it immediately meets the PQM or the PQM PLUS headline contribution standard.
Where the employer contributes at least 6%, it will meet the PQM headline contribution standard if at least 50% of scheme members contribute enough in Additional Voluntary Contributions (AVCs) to make up the total of 10%.
Where the employer contributes at least 10%, it immediately meets the PQM. It potentially meets the PQM PLUS if at least 50% of scheme members contribute enough in AVCs to make up the total of 15%.
Where there are matching contributions available should the scheme member choose to contribute, the contribution structure is treated as 'matching contributions', not non-contributory, for the PQM purposes.
8.Why do you have a standard on pensionable pay?
To make sure that the standards on contributions are meaningful, we need a standard on the amount of pay that is pensionable. Otherwise schemes could get PQM with seemingly high contribution levels, but where contributions are only paid on a small proportion of pay so are actually quite low. To keep things simple we have mirrored the 'certification' rules used by the DWP to assess whether a scheme qualifies for automatic enrolment.
9.What if my scheme is trust-based?
You already have governance in place, which is great. But where you are running a defined benefit (DB) section under the same trust as the defined contribution (DC) section you have to ensure that DC gets enough time at the trustee board meetings. We would expect for DC issues to be a standing agenda item.
Trustees also need to receive regular training - in a way of training courses or updates from consultants - so they can make informed decisions on behalf of the members.
10.What if my scheme is contract-based?
For contract-based schemes (group personal pensions, stakeholder pensions, group SIPPs and any other schemes not under a trust) there has to be governance in one of these two forms:
- Governance/ management committee
- Annual scheme review
We would expect larger schemes to have a governance or management committee in place which meets at least twice a year. At least one scheme membership representative has to be on the committee. Such a member can be employer- or member-nominated. All committee members need to receive regular training - in a way of training courses or updates from consultants - so they can make informed decisions on behalf of the members.
Annual scheme review form is more suited to small schemes. It has to be conducted by a person with sufficient knowledge of pensions. Scheme member views also have to be taken into account. Schemes often choose to collect these via surveys or during presentations.
11.What is the PQM charge cap and why was it introduced?
PQM has a charge cap to ensure that the scheme is good value for members. High charges can seriously erode the value of a pension pot over time. The cap usually only applies to charges on the scheme's default fund and can be no more than an annual charge of 0.75%.
12.What does PQM see as good communications?
The communications have to be clear and easy to understand. Any jargon should be eliminated where possible and, if it has to be used, it should be clearly explained.
Communications should also be regular:
Scheme members should receive clear communications about the scheme, its contribution structure and investment options on joining the company/ when they become eligible to join the scheme/ when they join the scheme.
Scheme members should receive regular ongoing communications, reminding them to review where they are with their pensions savings and make changes where necessary.
Scheme members should receive clear at retirement communications, outlining all their options.
13.Our scheme does not meet all the standards. Can I still apply?
You can apply but it is very likely that your application will be rejected. If you think you don't qualify please contact us prior to making an application. We will be able to help you with some tips and easy steps on how you can achieve some of the standards.
14.I would like to understand how the standards apply to my scheme. Is there help available and does the consultation cost anything?
Yes, we will be able to help you to understand how the standards apply to your scheme or what steps you need to take for your scheme to meet the standards. This service is free of charge, all you have to do is to contact us and tell us more about your scheme.
11/10/2017 - PQM announces shortlist for communications Distinction award read more
02/10/2017 - PQM Launch Good Communications Guide read more
T: 020 7601 1770
The IoD welcomes the PQM initiative. Employers and employees need to work together on tackling the retirement income challenges we all face, and on improving communication of scheme benefits. The focus of PQM in both these areas marks an important step forward in preserving and enhancing good quality workplace pension provision.
Malcolm Small - Senior Adviser, Pensions Policy, Institute of Directors