IAPF adds quality level to pension savings benchmark
Written by Sunniva Kolostyak
The Irish Association of Pension Funds (IAPF) is raising the pension savings benchmark (PQS) by adding the new category Merit Plus, it announced.
The association has decided to launch the category in light of confidence issues facing Ireland’s pension savers as universally acceptable and understandable quality standards are becoming increasingly important to both employers and employees.
The PQS recognises quality defined contribution schemes based on contribution rates, governance and communications and was launched in 2011. The Merit Plus is the third level of PQS, where schemes must meet minimum contribution requirements, but also requirements for governance and communication.
IAPF CEO Jerry Moriarty said: “Employees are forever being told that they need to have greater input into the management of their pension scheme, but most struggle to appreciate its value to them and are at a complete loss as to how evaluate its performance.”
According to the IAPF, existing employer-sponsored defined contribution pension schemes which covers hundreds of thousands of workers should aspire to the base PQS. The very best schemes, it said, should be looking to achieve the Merit-Plus level.
“These awards make that evaluation easier – pensions savers can now enquire as to whether their pension meets the PQS and if so, which level,” Moriarty said.
The three levels are PQS, PQS Merit and PQS Merit Plus. The basic level requires the contribution rate of 10% of salary, of which the employer must pay at least 6%. The PQS Merit requires a total contribution rate of 15%, with at least 10% from the employer.
The Merit Plus level requires combined contributions of at least 20% with the employer paying at least 15%.
“Such is the importance that many employers place on pensions and our experience with the PQS awards to date, that we expect quite a few companies, generally with large workforces, to qualify for this new level,” Moriarty explained.
“However, the assessment is not based on contribution rates alone as the quality of scheme governance and member communications are also assessed.”
The IAPF is expecting a strong response to the new standard as employers are becoming more generous when it comes to contribution rates.
The 2018 IAPF Defined Benefit Survey also found that of new DC schemes, the maximum employer contribution rate exceeds 10% in half of the schemes, with 8% of employers contributing greater than 15% of salary. In total, 86% of schemes paid more than the traditional, typical contribution rate of 5%.
“Many employers have begun to appreciate that if they want to ensure employees can afford to retire, they have to ensure that they will be saving sufficiently throughout their careers. And, with an improving economy, having a good quality pension scheme in place can assist recruitment and retention of employees,” Moriarty said.