DWP consults on proposals to amend the General Pension Scheme Levy
On 2 October, the Government published a consultation on its Occupational and Personal Pension Schemes (General Levy) Regulations review.
Building on the consultation it carried out in 2020, to recover by 2030-31 what was then a near £80m deficit, the Government now considers options for further change. It cites that, “without further intervention, the levy is expected to be operating with an accumulated deficit of over £200m” by 2030-31. The proposals cover the payments due in levy years 2024-25 to 2026-27.
Unusually, in light of the expected increase in the prospective deficit, the first option is for no change although this is quickly dismissed. Option 2 is a proposed increase of 6.5% per year across the board which, despite being significantly below recent inflation statistics and previous levy increases, is viewed as a significant increase that doesn't support the Government's policy direction. Option 3 is for a 4% per year increase plus a new (additional, but only from 2026-27) flat-rate “premium” of £10,000 for all “small schemes” – which the DWP defines as those with fewer than 10,000 members.
In Annex C of the document, the Government sets out the projected revenue for each option over the three-year period. By 2026-27, it forecasts £88.9m under Option 1, £107.4m for Option 2 and £200.9m under Option 3. Both of the last two options are projected to result in “an acceptable deficit or surplus” by 2030-31.
The Government's preferred choice is option 3 and states that introducing “the premium payment in 2026 allows smaller schemes time to adapt and consolidate, giving two years to consider whether this is in their members' interests”.
The consultation runs to 11:55 pm on 13 November.
WTW comment
Readers may recall that the 2020 review resulted in significant
hikes to the levy, with increases being phased in over three years
to 2023-24. Over this period, the levy for DB and hybrid schemes
increased by between 117% and 120% (depending on the appropriate
membership band for the scheme) and for non-Master Trust
occupational DC schemes by between 48% and 50%.
Option 3 is designed to coerce trustees of smaller schemes to
consolidate with no regard as to whether this might be in the
interests of their members or indeed of the wider pensions
community, as they will be obliged to pay the Additional Fee solely
because of their size irrespective as to whether their governance
imposes additional burdens on the regulatory regime. At first
sight, this appears to run counter to the proportionality guidance
from the Regulatory Policy Committee and it is difficult to see how
this comprises risk-based regulation.
Revenue (£millions) | 2023-24 | 2024-25 | 2025-26 | 2026-27 |
---|---|---|---|---|
DB and hybrid | 54.9 | 56.3 | 58.0 | 59.9 |
DC (excluding Master Trusts) | 2.8 | 1.9 | 1.9 | 1.8 |
Master Trusts | 18.2 | 20.8 | 23.8 | 27.4 |
Personal Pensions | 8.9 | 9.2 | 9.7 | 10.3 |
Additional Fee | N/A | N/A | N/A | 101.5 |
Total | 84.8 | 88.3 | 93.5 | 200.9 |
Table A3 of Annex C sets out the revenue forecast under
Option 3
As is apparent, the £10,000 premium is projected to raise
more than the ‘standard' general levy. With the projected
deficit of just over £200m in 2030-31, absent any change, it
would appear to be wiped out with two years' payments. However,
there is no indication in the document that the Government intends
this to be a temporary premium. Rather, the implication is that
this would likely be the new norm; which then begs the question as
to what the Government intends to do with the likely £300m
surplus that it will build up by the end of 2030-31?
It also needs to be noted that the projected revenue in Table A3 is
predicated on an assumption that “50% of all schemes in scope
consolidate by 2026, 2023-24 to 2026-27”.
Part of the rationale for the increase is to meet increasing costs
of the three entities that the levy covers – the Pensions
Regulator (TPR), the Money and Pensions Service (MaPS) and the
Pensions Ombudsman (TPO). Analysis of the latest sets of reports
and accounts for each of these bodies shows that the number of
staff is increasing. All three publish full-time employee numbers;
108.4 (2020-21) to 115.7 (2021-22) for TPO and 356.20 (2020-21) to
385.10 (2021-22) for MaPS and 470 (2021-22) to 512 (2022-23) for
TPR. The figures for TPR exclude automatic enrolment compliance
officers (269 in 2022-23) as these are currently exclude from the
general levy.
Amongst other things, the consultation document cites
“extending TPR's regulatory grip” and increasing
demand for TPO's services as reasons for the increasing costs.
However, given the modelling assumes that the number of schemes in
scope for the Option 3 premium will halve, it raises the question
as to whether such an increase is really necessary?
How the quoted revenue figures were calculated is also unclear.
In-scope schemes, those with fewer than 10,000 members number 5,000
on the DB side and around 26,000 for DC (the latter based on scheme
return analysis for 2022-23, albeit the data shows schemes with
5,000+ members rather than 10,000+). Assuming 50% of the sub
10,000/5,000 schemes consolidate, that would appear to give rise to
an additional premium over the standard levy of £155m rather
than £100m.
As well as asking which option respondents prefer and why, the
Government seeks views on the ‘impact' on the
scheme/business of both options 2 and 3. The penultimate question
seeks views on whether the increased cost would be absorbed by the
scheme, passed on to members or passed on to employers. The final
question then asks about the size of the scheme sponsor “if
you were to consider passing on costs to employers to absorb the
levy increase”.
Perhaps when considering how to respond to this consultation,
stakeholders might ask the Government to set out more clearly how
it expects future resourcing numbers at the three entities to
develop and whether setting a premium of £10,000 is the
minimum necessary to make up the accumulated deficit. If not, what
is the justification for building a surplus – particularly if
the Government is successful in its campaign to halve the number of
regulated schemes?
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