Schemes hit back at DWP’s levy ‘knee-jerk solutions’

These professionals are also asking the DWP to provide more transparency on how the deficit in the department’s arm’s-length bodies budget has opened up, and to review costs and expenditures.

In a consultation published in October, the DWP stated that the general levy will need to rise to plug an estimated gap of £540m by 2029-30 under current rates.

This levy, which was last increased in 2008-09, recovers the funding provided by the department for the core activities of the Pensions Regulator, the Pensions Ombudsman and part of the activities of the Money and Pensions Service.

Government favours 10 per cent rise

We cannot support the proposals outlined in this consultation paper, which present knee-jerk solutions to a long-term and structural financing problem with the general levy

Darren Philp, Smart Pension

The government proposed four options to increase the levy, favouring the first option, which would see a rise of 10 per cent in 2019-20 rates on April 1 2020, with further increases from April 2021 informed by a wider review of the fee.

Other options included a phased increase over three years of 45, 125 and 245 per cent, respectively, or over 10 years starting in 2020 or 2021.

In its response to the consultation, which closed on Friday, Smart Pension stated that none of the options presented by the DWP “are palatable, and the bigger questions associated with sustainability, proportionality and fairness have been effectively ‘long-grassed’”.

Currently, the levy is paid according to the number of members in the pension scheme, with different values for occupational schemes and personal/stakeholder plans.

Darren Philp, director of policy and communications at Smart Pension, argued that this method is “grossly unfair” to auto-enrolment schemes and savers, as people “who have been auto-enrolled with small amounts of pension saving are cross-subsidising those with larger pots”.

He said: “While we understand the need for levy financing to meet expenditure in the short and long term, we cannot support the proposals outlined in this consultation paper, which present knee-jerk solutions to a long-term and structural financing problem with the general levy.”

Master trusts taking the biggest hit

New analysis from The People’s Pension shows that 10 master trusts will pay at least 25 percent of the total general levy, despite only holding two per cent of assets.

By 2020-21, the scheme – with more than 4.7m members - would alone pay £2.9m, or nearly 7 per cent of the total general levy as it is currently calculated, despite having assets of £8bn.

In comparison the Universities Superannuation Scheme, which is the largest pension fund in the UK with assets worth £60bn and 450,000 members, would pay around £390,000.

Gregg McClymont, director of policy at The People’s Pension, argued that the general levy is no longer fit for purpose.

“The per member structure made sense in a world of long-term employment, where a smaller proportion of the workforce had access to workplace pension saving. But auto-enrolment is a small pot-creation machine, because it’s, rightfully, brought in a new group of people with lower earnings who move from job to job much more frequently.

“It’s completely unfair that these savers carry the heaviest regulatory burden, with master trusts paying the highest cost.”

Increased funding led to levy deficit

The DWP’s decision to increase the levy is largely due to its rates not keeping up with inflation, and an increase in funding for public bodies.

Mr Philp said that before proceeding with the levy increase, there should be a considered review of the costs and expenditure of DWP’s arm’s-length bodies.

“While we appreciate that these bodies are being asked to do more for the benefit of pension savers, there cannot be a blank cheque when it comes to the financing of these bodies, and they need to be held more accountable for their expenditure plans, including more transparency as to the costs of regulation.”

He added: “Value for money is an important concept in pensions, which should apply equally to regulatory expenditure.”

Mr McClymont agreed: “We’re calling for an immediate review of the structure of the levy and believe that for transparency purposes the government should provide a breakdown of regulatory costs by pensions sector.”

A similar call was made by the Pension and Lifetime Savings Association, with the goal to ensure the efficient allocation of costs and to prevent unintended consequences of the increase.

The PLSA is also asking the DWP to provide greater transparency on the deficit and forecast costs, and develop greater accountability on costs and impacts.

The DWP declined to comment on the matter.