The PQM Standards
The Mark is available for defined contribution pension schemes which meet three basic criteria - contributions, governance and communications. Please download the full standards to determine if your scheme qualifies for the PQM or PQM PLUS.
1. What is the level of contributions needed to qualify for the PQM and PQM PLUS?
Contributions of at least 10%, with a minimum employer contribution of 6% for the PQM. For the PQM PLUS overall contribution rates must be 15% including an employer contribution rate of 10% or more.
2. Why have you decided on these contribution levels?
The level of contributions chosen reflect good (PQM) and very good (PQM PLUS) practice.
The level of contributions by the employer under both levels of the PQM aware are substantially more than the new 2012 statutory minimum of 3% - twice the level in the case of the PQM standard (6%) and over three times the level with regard to the PQM PLUS standard (10%).
3. Do the required contribution levels reflect the diverse DC pension arrangements offered by employers?
Yes. The PQM reflects the variation in the design of DC pension schemes and takes into account the following: fixed contributions, matching contributions, age and service-related schemes, job and category-related and non-contributory schemes, and salary sacrifice.
4. If I was a member of a scheme that qualified for a PQM or PQM PLUS, what level of pension would I receive when I retired?
The PQM is designed to encourage saving at a level above the new minimum set out in the Government's pension reforms (8% of earnings within a limited band of pay), so that workers get closer to the kind of retirement incomes that they expect. In 2005, The Pensions Commission found that average earners should ideally aim for a retirement income of 60-67% of their working income, and set auto-enrolment (where employees are automatically enrolled into a pension scheme from 2012) at half the level of voluntary saving needed to get to that level.
We have projected earnings replacement rates in order to estimate what saving into different types of pension might achieve. For an average earner, state pensions and paying into Personal Accounts for 40 years will generate a retirement income of around 43% of their previous earnings. (For example, someone earning £26,000 today after 40 years could expect a pension income of around £11,000 a year - in today's prices and earnings.)
An average earner paying into a PQM pension (10% total contributions on basic pay) could expect a retirement income worth around 50% of their working income (around £13,000 in today's prices and earnings). For a PQM PLUS pension, an average worker could expect around 60% of their previous income (around £15,000 in today's prices and earnings).
5. Can the Pension Quality Mark guarantee a certain level of pension?
The PQM does not specifically relate to or guarantee the level of pension income an employee will receive at retirement. Rather, it seeks to identify good and very good provision.
Using some prudent assumptions, it is possible to estimate the levels of retirement income that might be provided by a PQM Pension (see answer above). However, as with all DC pension saving, it is impossible to be certain about pension levels as they depend on a range of changing factors including investment performance, inflation, annuity rates and longevity. That is why we have set out governance and communications standards that ensure the employer regularly reviews the scheme in light of changes, and that employees receive the information they need to keep engaged and make decisions.
1. What are the basic components of the governance standard?
Governance arrangements must be in place to ensure the scheme is well run and operates in the best interests of members. Provisions include:
A governance structure such as a trustee body, management committee or annual scheme review (in consultation with members).
Simple investment options must be available such as a default fund; or a limited choice of risk related funds; or a wider choice, but only if advice and guidance is available.
The average total charge, including all administration and fund management charges that are paid by scheme members (including both current and past employees) must not be more than a 1% Annual Management Charge.
2. Why have you not insisted that all contract-based schemes have management committees?
The PQM is aimed at companies both large and small and the latter may not have the resources available to run a permanent management committee. However, in applying for the PQM, the company will have to show that, as a minimum, an annual scheme review is adequately carried out.
3. Can you say how many funds you mean by 'limited range of funds'?
Broadly speaking, if there are 10 or less funds we will consider it to be a "limited range of funds". However, our decisions on whether it would be appropriate to give the PQM to a scheme are also related to the quality and clarity of the information and guidance provided. Therefore, a PQM may be given to a scheme with a single fund, a limited range of funds, or a wider range of funds.
1. What criteria do pensions schemes need to meet for the communications standard?
To meet the standard, communications must be clear, engaging and easy to understand. In addition, communications must take place at three specified stages of membership:
At induction/joining, employers or schemes should provide engaging information that emphasises the scheme benefits and the need to take action.
On an ongoing basis, employers or schemes should offer face-to-face or over phone (such as group seminars, 1-2-1s or a helpline); or tailored individual information (such as access to pension account online); or regular generic information (such as newsletter or up-to-date intranet site).
When an employee nears retirement employers or schemes should ensure they receive information to help them consider retirement options.
2. How will you monitor schemes' communications?
Schemes will have to provide examples of communication with members when they first apply for a PQM and will have to certify annually that they still meet the qualifying criteria. There will also be verification checks on a number of randomly selected schemes to ensure they are meeting the necessary criteria.
28/11/2017 - Aon MasterTrust awarded PQM Ready read more
07/11/2017 - Aviva Master Trust awarded PQM Ready read more
T: 020 7601 1770
We welcome the Pensions Quality Mark as an independent benchmark to help employers with this important communications task, and we?re delighted to practice what we preach in securing the Pension Quality Mark PLUS for our own scheme.
Lisa Sarjeant - HR Director, CIPD