Each year pension schemes pay a general levy based on their membership in respect of funding the Pensions Regulator (and other government bodies working with pension schemes). This is currently insufficient to meet those costs and so The Department for Work and Pensions (DWP) proposes to substantially increase the amount of the general levy for the years from 2024/25 to 2026/27. It is carrying out a consultation on its proposed three approaches.
Option 1: Leave levy rates and structure unchanged which is not compatible with the DWP target to make the pension regime self sufficient.
Option 2: Retain the current structure but with 6.5% increases to the levy rates in each year.
Option 3: Increase the levies by 4% per year, but charge schemes with memberships under 10,000 an extra £10,000 each which would not be introduced until April 2026.
Its favoured approach is Option 3 which would see schemes with fewer than 10,000 members paying an additional £10,000 ‘premium’, in April 2026, on top of the usual per-member levy. Any scheme, no matter how small, would have to pay this £10,000 levy each year. This is with the stated intention to incentivize smaller schemes to consider consolidation.
We would encourage anyone potentially impacted by this to take part in the consultation which is relatively straightforward.
There are six questions that need to be answered with submissions sent by email to email@example.com 11:55pm on 13 November. The link to the consultation can be found here; The Occupational and Personal Pension Schemes (General Levy) Regulations review 2023 – GOV.UK (www.gov.uk)
Our founder, Chris Atkin, has shared his thoughts on the proposals which can be found here: https://atkinpensions.co.uk/2023/11/chris-atkin-response-to-general-levy-consultation/
I have also set out how we intend to respond to the consultation with some other thoughts and we are happy to talk through the implications as well.
Q1: Which option do you prefer? Option 2
Q2: In respect of your answer to Question 1, why do you support your preferred option? The additional £10,000 levy would be inequitable and, in the case of DB schemes could lead to worsening member outcomes.
Option 3 would be seen to be grossly unfair and should not even be countenanced. This could increase the annual running costs of small scheme by over 25%. We believe that the arguments for consolidating smaller DB schemes are flawed and do not believe it results in better value or outcome for members.
Before applying such an arbitrary penalty to smaller schemes, the evidence for consolidation should be indisputable and overwhelming. TPR should be able to present their evidence and offer it up for public scrutiny.
There should be an established market place of consolidators who can demonstrate that this has resulted in improved outcomes for members and who have had substantial success in attracting smaller schemes on their own merits.
We would caution any interference in markets, this invariably leads to unintended consequences.
Currently, many small schemes obtain their services from a network of specialists who are able to provide a bespoke, high quality service at a competitive fee. Their small size means that they can adopt a personal rather than system led approach which we believe provides better outcomes for the member in terms of security, accessibility and understanding.
This network of providers has evolved over many years and is now a fundamental part of the ecosystem driving innovation and controlling costs. Forcing schemes to consolidate whether it makes sense or not, could lead to the destruction of this ecosystem with little possibility of returning to it once it has gone.
Q3: What is the impact on your scheme/business of raising the levy under Option 2? Accepting that an increase in necessary this would have the least impact.
Q4: What is the impact on your scheme/business of raising the levy under Option 3? The significant increase in cost would be seen as grossly unfair and might in some cases be unmanageable leading to an adverse impact of the business and worse member outcomes.
Q5: How will your scheme respond to a levy increase and/or premium? (For example: would it be absorbed by the scheme, passed on to members, or employers?) It would be difficult to see how a massive levy on a small DC scheme would be absorbed unless the costs are passed on to members under the rules of the scheme. The levy would hit sponsors of DC schemes and would encourage consolidation of small DC schemes. For DB schemes the employer would have, at the end of the day, to meet the increase. Outcome – potential worse member benefits and significant employer resentment at unfair treatment.
Q6: If you were to consider passing on costs to employers to absorb the levy increase, what is the size composition of employers using your scheme? (For example: are they mainly small, with less than 50 employees or larger employers?) No comment