Page last updated at 10:50 GMT, Monday, 21 September 2009 11:50 UK

Pensions 'quality mark' unveiled

Pension Quality Mark
The Pension Quality Mark requires an annual fee

A scheme aimed at rebuilding confidence in workplace pensions and making them understandable and attractive to employees is being unveiled.

The Pension Quality Mark will be awarded to employers meeting a list of criteria, including having a minimum 6% employer contribution rate.

Marks & Spencer and Standard Life will be among the first recipients later.

The scheme is being run by the National Association of Pension Funds (NAPF), which represents 1,200 UK funds.

The scheme comes amid a tough climate for pensions with a number of companies having closed final-salary schemes in recent times.


Employers have closed most final-salary schemes to new joiners and replaced them with money purchase or defined contribution versions.

In these, the eventual pension depends directly on the amount of cash built up through investment, with no direct relationship to the number of years for which members have been contributing or their final salary at retirement.

The Pension Quality Mark is designed to create a benchmark for good quality defined-contribution schemes offered by employers.

To qualify the pension scheme must:

  • Have contributions of at least 10% of a salary in the pension saving scheme, with an employer contribution of at least 6%
  • Prove that the scheme is being run in the best interests of members, with administration and fund management charges limited to 1% of the main funds
  • Ensure communication to members is clear, engaging and easy to understand.

There is a one-off assessment fee of £250 and a £250 annual licence fee (£500 annual fee for larger schemes)

The first awards are being made on Monday with Marks & Spencer, Kellogg's, Accenture, BG Group, IBM, Standard Life, and The Royal College of Physicians all recipients.

This list includes businesses that are planning to close final-salary schemes to new and existing members.

But Joanne Segars, chief executive of the NAPF, said that the not-for-profit award was not created because final-salary schemes were closing, but to applaud employers for high-calibre schemes and allow employees to "navigate through the pension maze".

"It shows these employers' commitment to encouraging their staff to save for retirement, which is becoming ever more vital," she said.

She hopes that 100 schemes will receive the quality mark in the next year.

Doug Taylor, from the consumers' association Which?, said that providing a benchmark could help people "judge the quality of the pension scheme offered".

"Companies will be able to easily promote that aspect of their employment package," he added.


Estimates by Aon Consulting suggest the average retirement income from a defined-contribution scheme for a 60-year-old in the UK is now £12,021 a year, or £231 a week. This is 52% lower than the average in annual UK wage in 2008.

Occupational scheme - one organised by an employer
Active member - a worker making contributions
Final-salary scheme - guaranteed pension based on earnings at end of career and length of service
Defined-contribution scheme - investment fund, determined by contributions and investment returns, used to buy an annual pension

The management firm described the situation as a "ticking time-bomb" but Mrs Segars said that the vast majority of people with long-term plans were decades away from retirement.

Since the trough of the latest downturn, the value of pension funds has risen as share values have recovered.

Mrs Segars said that "realism not opportunism" had led employers to have a close look at their pension benefits during the recession, leading some to close their final-salary schemes.

Employer contributions are generally lower in defined-contribution schemes than final-salary schemes, but those which qualify for the Pension Quality Mark will be more generous than workplace pension schemes which all employers will need to offer from 2012.

The Personal Accounts scheme - which is aimed at low to moderate earners - will be one possible option available to employers.

In such a scheme, employees would put in a minimum of about 4% of their salary, with an employer contributing a minimum of 3%, and there is tax relief worth another 1%.

The aim is for the take-up of pension savings - especially among younger workers - to increase.

However, it could lead to some employers with existing schemes bringing down their contributions to this 3% statutory minimum.

The NAPF award is aimed at combating such a move by employers. A higher Pension Quality Mark Plus standard is being given to schemes which have a contribution rate of 15% of earnings, of which a minimum of 10% comes from the employer.

The organisation represents 1,200 pension schemes in the UK.

'Raise pension'

A separate report published on Monday by the Centre for Policy Studies think tank suggested that the pension system could be simplified and pensioner poverty reduced.

Michael Johnson, the former secretary to the Conservative Party's economic competitiveness policy group, wrote the report which proposed a stepping stone approach to pensions.

He proposed that income from Personal Accounts should primarily come during the first 10 years of retirement, with the state pension increased 10 years after retirement.

To pay for the changes, people would have to save more and consume less and the second state pension scheme would be scrapped.

sector final salary pension schemes

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