The Living Pension accreditation provides a savings target for Living Wage Employers to provide workers with financial security
The Living Wage Foundation has extended its Living Pension accreditation to defined benefit (DB) pension schemes.
The charity said that, following a feasibility study completed last year by Isio, it has set up Living Pension for DB using the same principles as for its defined contribution (DC) scheme as much as possible.
Its accreditation for DC has a savings target of 12% of a full time Living Wage worker's salary – made up of a minimum 7% employer contribution. It can also be met as an annual cash amount based on the Living Wage each year. For 2024/25 this is £2,950 with £1,720 coming from the employer.
The Living Wage Foundation said there are two key areas where DB varied – in benefit outcomes, where the scheme must be both certified as meeting the AE ‘test scheme' standard and use an accrual rate of at least 1/120ths for each year of pensionable service, and with regards to contribution rates.
The charity said employer contributions were often higher than the maximum level of 5% it set for DC schemes noting it required employers operating DB pensions with employee contributions above 5% to meet at least one of three criteria.
The three criteria are that all employees are paid an hourly rate of pay that ensures they have at least 95% of real Living Wage after their pension contribution is deducted; an alternative pension option is available requiring no more than 5% employee contribution whilst meeting the Living Pension standard; or that the opt out rate for each DB pension is no more than 10%.
The Living Wage Foundation said two employers who provide DB pensions – the Rossie Young People's Trust and Hebridean Housing Partnership – had already gained accreditation through the extension of the scheme.
Living Wage Foundation senior project manager Shelley Morris said: "We're delighted to announce that the Living Pension now extends to DB pensions, ensuring we can recognise and celebrate employers like Rossie Young People's Trust and Hebridean Housing Partnership who are providing financial security to their workers now and in retirement by offering these very valuable pensions.
"Since 2011 the Living Wage campaign has built a movement of over 16,000 leading employers who have chosen to do the right thing and transform millions of people's lives through decent pay. Because of their commitment nearly half a million people receive a vital cost of living pay rise every year and over £3.85bn has been put back into the pockets of those who need it most. The Living Pension accreditation builds on the success of the Living Wage by providing an annual savings target for Living Wage Employers to provide workers with financial security now and in the future."
Isio director Paul Moffat added: "As a member of the Living Pension steering committee, it has been great to contribute to the development of this standard. Following the success of the DC Living Pension, we were tasked with developing an accreditation approach tailored to DB schemes. Collaborating closely with the Living Wage Foundation and the steering committee, Isio provided technical expertise to shape a framework that enhances members' understanding of their pensions.
"This initiative is about more than just savings, it's a commitment to clarity and long-term financial wellbeing. Being part of such a transformative effort highlights Isio's mission to drive change in the pensions landscape."
