Justine Tate: Should employers take more responsibility for employees’ retirement savings?

Tate Justine-PQM-2015

Pensions are often seen as being complicated and confusing, resulting in people avoiding having much to do with them.

Employers’ input is vital for those who prefer not to engage with pension saving and who would rather not make decisions for themselves. 

An employer’s active support of a good pension scheme can have a positive effect on members’ retirement savings.

The employer can also boost pension saving by agreeing to pay in contributions that are a good percentage of pensionable pay.

To pass the Pension Quality Mark (PQM) standard relating to contributions, a contribution of 10% of pensionable pay must be paid in, with at least 6% coming from the employer. For the PQM Plus, the minimum is 15%, with at least 10% from the employer.

The size of a person’s pension pot is most dependent on how much is paid in and for how long, so an employer paying high contributions or offering high matched contributions is taking a very positive step.

The investment return on employees’ pensions depends wholly on the performance of the default fund chosen by the scheme.

A paternalistic employer may want to ensure that the default investment strategy is actively managed by the scheme’s governors. The PQM has stringent conditions relating to this, because we feel it is very important.

If the employer promotes and publicises the pension scheme so that their employees realise what a valuable benefit they are being given, this may result in a more stable and contented workforce, which is a benefit for everyone.

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Justine Tate is managing director of the Pension Quality Mark (PQM)