The Pension Quality Mark (PQM) is to explore setting tough new minimum standards for default investment funds.
The PQM, which is a benchmark for good-quality defined contribution (DC) pension schemes, was introduced by the National Association of Pension Funds (NAPF) in 2009.
It wants to add default funds to its list of criteria that applicants and existing holders of the PQM have to meet.
PQM standards currently focus on issues of governance, employee communications and employer contribution levels.
The PQM is now seeking industry views on what pension schemes should consider when setting the investment strategy for their default fund.
Options include that a DC scheme’s governing body makes regular checks on the:
- Suitability of the default investment option for members, including its risk and return balance, particularly when members are approaching retirement.
- Investment performance of the default fund and charges of fund managers.
- Quality of communications with savers about the default fund and other investment options, and the level of participation in the default option.
- Level of support available to members who do not choose to invest in the default fund or for whom the default option may not be appropriate.
PQM has set a deadline for responses of 20 September 2013. It plans to implement changes to the standards in April 2014.
Alex Kitching (pictured), PQM manager, said: “PQM is the standard for best practice and it is continually evolving, both to reflect and lead market changes.
“Millions of workers will be automatically-enrolled into pensions in the years ahead, and the overwhelming majority will end up in the default, so it is a fundamental part of the pension.
“It is essential that those who do not want to make investment decisions about their pension do not get left out or short changed. Pension schemes must look out for their saver’s interests.
“Given the growing scale of membership in default funds, trustees, employers and providers need to focus on the better design, communication and governance of default funds.
“We would like to hear the views of the pension industry, employers and consumer groups on what factors should be considered when designing a good default fund. Our work in this area will build on the guidance developed by The Pensions Regulator and the Department for Work and Pensions.”