Trade bodies have hit out at government proposals to increase the levy that pension schemes pay to the government to cover the costs of regulation.
A consultation on levy changes was published by the Department for Work and Pensions (DWP) earlier this week amid a flurry of consultations and updates on various areas of regulatory reform.
It proposed a 6.2% increase to the levy charged on defined contribution (DC) pension schemes, not including master trusts, and a 9% increase on the charge for master trusts and personal pension scheme providers. The levy funds the operations of the Pensions Regulator, the Pensions Ombudsman, and the Money and Pensions Service.
The DWP said the increases were designed to put the levy on “a more sustainable footing” after a period of shortfalls that had accumulated a “debt” of £154m. It aims to “stabilise” the shortfall by 2036.
“The levy should be fair, transparent and aligned with government policy for the pensions market. That means avoiding disproportionate costs falling on any one group of schemes and providing a clear rationale for how levy funding is used and why additional revenue is needed.”
Over the past three years the levy has increased by 6.5% annually, but maintaining this “would not enable the levy to keep pace with the rising costs of the pension system”, the DWP said.
However, Pensions UK and the Society of Pension Professionals (SPP) have criticised the proposed increases, in particular the higher rates set to be charged to master trusts.
Zoe Alexander, executive director of policy and advocacy at Pensions UK, said master trusts already had a “disproportionate share of cross-subsidy” under the current levy system, and this position would worsen under the proposal.
Calum Cooper, president of the SPP, added: “A sustainable funding model is important, but the scale of the proposed increases for master trusts raises legitimate questions about fairness and proportionality.
“The government will need to demonstrate why these schemes should face the fastest increases and ensure that higher regulatory costs do not ultimately reduce value for pension savers.
“The right approach is one that is sustainable, evidence-based and reflects the evolving pensions landscape – and these are the facts that the SPP are likely to make clear in its consultation response.”
Alexander also highlighted that the consultation was the third time the government had sought input on the levy, but a “full structural review of the levy first promised by government has still not been delivered”.
“We continue to believe that any further increases should be considered as part of that wider review,” she said.
“The levy should be fair, transparent and aligned with government policy for the pensions market. That means avoiding disproportionate costs falling on any one group of schemes and providing a clear rationale for how levy funding is used and why additional revenue is needed.”
Bell warns of ‘structural funding gap’
In his foreword to the consultation, pensions minister Torsten Bell said the DWP had “identified a structural funding gap” whereby the income from the levy had not kept up with the rising costs of regulation.
“Our aim is a transparent approach and a stable framework within which schemes and employers can plan. In return, levy-funded bodies must continue to drive efficiency and demonstrate clear value for money.”
Torsten Bell, pensions minister
The government’s reform agenda was set to increase the resources required by regulators, Bell added, meaning a review of charges was necessary to ensure these organisations could successfully oversee the changes to the wider system expected over the next few years.
These additional responsibilities included new authorisation, supervision and enforcement requirements in emerging areas such as collective defined contribution, as well as more data collection and analysis work.
“Our aim is a transparent approach and a stable framework within which schemes and employers can plan,” Bell said. “In return, levy-funded bodies must continue to drive efficiency and demonstrate clear value for money.”
