Industry organisations raise further concerns over 'harsh' general levy changes

Further concerns have been raised around the government’s proposed changes to the general levy on occupational and personal pension schemes, with industry experts warning that some options could risk overly burdening smaller pension schemes.

The Department for Work and Pensions (DWP) recently launched a consultation on potential plans to increase the general levy on occupational and personal pension schemes.

The consultation outlined three options designed to mitigate the levy funding deficit over the next three tax years, after estimates from the DWP revealed that, if levy rates were to remain unchanged, there would be a deficit of over £200m by 2031.

Two of the options would leave the levy structure unchanged, while the third option, which has been identified as the DWP's preferred option, would involve a small change to the levy structure to better reflect the current focus of the regulatory regime.

However, industry responses so far have revealed greater support for option two, although this was primarily due to concerns that options one and two could prove unviable or place an unfair burden on smaller schemes.

The Association of Consulting Actuaries (ACA) response, for instance, said that the DWP should proceed with option two, as option one was “not viable” and it could not support option three.

“Of the three options set out, we support option two, simply because we think that you cannot proceed with option three, as this applies an exceptionally harsh £10,000 “additional premium” to each scheme with memberships of under 10,000," ACA pension schemes committee chair, Peter Williams, stated.

He continued: "The general levy is raised under powers set out in section 175 of the Pension Schemes Act 1993. This explicitly states that the levy’s purpose is to meet the expenditure of The Pensions Ombudsman, The Pensions Regulator and the pensions guidance functions of the Money and Pensions Service.

"We are not lawyers, but it seems to us that the additional premium is being raised, not for any of these purposes, but to advance the cause of consolidation, which is a DWP policy matter.

“Consolidation, which we support in principle, should be for parliament to decide, such as through the implementation of the value for money proposals for DC occupational schemes on which the government set outs its intentions in July 2023.

"No doubt, as this and as other consolidation initiatives proceed, there will be some small schemes that will have good reasons not to consolidate.”

Similar concerns were raised by the Association of Professional Pension Trustees (APPT), which argued that, based on the information provided, option one is “untenable as insufficient funds are collected to meet the oversight and regulatory costs”, while option three “overly burdens small schemes”.

However, the APPT suggested that option three could be viable if it is amended to recognise the governance efficiencies and other benefits for those schemes that use an accredited professional pension trustee.

In particular, it suggested that the DWP could consider reducing or removing the £10,000 flat charge under option three for those schemes with an accredited professional trustee.

This, according to the association, could help DWP to encourage smaller schemes to appoint an accredited professional pension trustee, encourage a wider group of professional pension trustees to become accredited, and provide greater oversight of the work professional pension trustees undertake in respect of these schemes.

“Whilst not fully endorsing accreditation, the above change to option three would lead to higher standards of governance for smaller schemes and would provide a nudge to professional pension trustees to become accredited," APPT chair, Harus Rai, stated.

“From the APPT’s perspective, we believe that all professional trustees should be accredited so scheme members and sponsors can be assured that the governance standards of their scheme are of a high quality."

Aside from the specific options included in the consultation, the ACA has raised broader concerns around the lack of transparency within the consultation, arguing that, as DWP are seeking to recoup a material accumulated deficit, "it owes it to levy payers to set out what the general levy should look like once that deficit has been recovered and the planned level of increases going forward for inflationary".

“In the previous consultation, the expectation was that the accumulated deficit would be recovered by 2030. DWP now say that continuation without change, under option one, is expected to result in an accumulated deficit of over £200m by 2030/31,” Williams continued.

“We are disappointed that DWP have not published any evidence of the current deficit, the variances that have arisen since the general levy was fixed for the three years commencing 1 April 2021, and how the deficit is expected to develop over the current remediation period if no action is taken.

"We think that DWP owes it to levy payers to be much more transparent about these matters.”

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