Mercer values the National Association of Pension Fund’s (NAPF) Pension Quality Mark (PQM and PQM Plus), which sets quality standards for defined contribution (DC) pension schemes. However, the consultancy cautions against the NAPF introducing further restrictions on pension provider charges in order to achieve benchmark status. In particular, says the consultancy, it is critical that the NAPF places emphasis on ‘value for money’ for members, which may not always mean lowering scheme charges.
Since the Pensions Quality Mark was launched by the NAPF in September 2009 and with auto-enrolment looming for many organisations, it has become a valued and influential indicator of which DC pension schemes offer members and employers fair pension outcomes.
Martyn James, Investments Principal at Mercer said, "The principles behind the Pension Quality Mark, as a standard for DC pension schemes, are important for achieving good member outcomes in retirement. The NAPF promotes better standards in member contributions, scheme governance and employee communication. Mercer shares the NAPF’s commitment to improve industry standards in these areas to benefit members.
Standards set by the NAPF for meeting the Pension Quality Mark criteria are valued across the industry. However, a reduction of the maximum allowable fees that a pension scheme can charge to its members from 1% p.a. to 0.75% p.a., to attain PQM or PQM Plus status, may not always be in the members’ best interests.”
“Whilst Mercer is supportive of lowering fees where current charges are uncompetitive, the focus of trustees and employers should always be on the value for money provided to their members - once all charges have been considered. For some employers and trustees this may very well be interpreted as putting in place a low cost pension scheme. However, for many others, a scheme with a higher charge that aims to achieve better potential outcomes for members will always be first choice.”
“By reducing allowable charges to obtain the Pensions Quality Mark, employers may be steered away from capitalising on attractive investment options that have higher charging structures. These higher charging investments could potentially improve member outcomes by increasing the size of the accumulated pension pot or by reducing the risk of loss of capital, but would still fall short of the benchmark standard.”
Mr James added, “Lower charges do not always automatically translate into better value, or higher benefits, and industry restrictions should not be introduced which discourage trustees, employers and their advisers from considering the wide range of investment opportunities available, particularly as schemes need to cater for very different member groups and for the rapidly evolving DC market."
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