Pension Quality Mark, a standard recognising high quality defined contribution (DC) pension schemes, has reinforced the requirements for default investment strategies in its revised standards document published today.
The new investment standard, which is part of the governance section of the PQM principles, outlines the good practice processes pension schemes must follow when setting, monitoring and reviewing the default fund’s investment objectives.
The revised standards also require documented objectives of the default investment strategy, plus regular monitoring and formal review by trustees, governance committee or through the company’s own annual scheme review, every three years or more.
Commenting, Justine Tate, Managing Director of the PQM, said:
“Pension Quality Mark exists to shine a light on good quality pension schemes and help raise the standard of defined contribution schemes available to employees. Approximately 80 to 90% of DC pension scheme members are in the default fund and it is crucial that the default investment funds’ investment strategy is sound.
“There are three key factors that make the biggest difference to the size of the retirement pot: good contributions, low member charges and a properly monitored investment strategy- PQM makes sure all three are in place.”
In March the Government introduced a 0.75% charge cap for DC default investment funds, matching PQM’s existing 0.75% charge cap.
Commenting Tate said: “Since PQM launched in 2009 it has already made a positive impact and led the way on good practice in schemes by setting a 0.75% charge cap. We were also the first organisation to set standards for governance committees, ensuring proper representation of members’ interests in contract-based schemes.
“Schemes that hold the PQM should feel proud they were among the first schemes in the UK to have met these standards, leading the charge in the provision of good quality DC pension schemes.”
DC schemes looking to gain the independently assessed Pension Quality Mark will need to demonstrate that they meet the strict criteria for contributions, governance and communications, including the new enhanced governance principles.
Schemes that have already been awarded the PQM will have until their first renewal after April 2016 to meet the new default investment strategy standard.
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