Govt confirms 4 new pension levy rates; TPR and TPO budgets frozen

The government has confirmed that it plans to proceed with an increase in the general levy rate in April, whilst simultaneously introducing four separate sets of rates for defined benefit (DB), defined contribution (DC), master trust and personal pension schemes.

It also confirmed that it would give consideration to the creation of additional levy categories to reflect the development of future scheme types, such as superfunds, in light of concerns from respondents.

This four-rate proposal was highlighted as the preferred option by the government in its initial consultation, as it would “better reflect” the differing levels of attention devoted by the supervisory scheme against each scheme type.

At the same time, it argued that the proposal would preserve the collective approach underpinning the current levy system, together with the “inherent simplicity and operability” of a levy system base on the number of members in each scheme.

This option also received the most support from respondents to the consultation, with 18 of the 23 respondents highlighting this approach as "fairer" and more representative.

In comparison, just one respondent supported option two and one supported option 3.

Alongside these changes, the government has announced plans to freeze the 2021/22 operating budgets of The Pensions Regulator (TPR) and The Pensions Ombudsman (TPO) at 2020/21 levels.

In addition to this, the government stated that it will reduce the core element of Money and Pensions Service funding by 25 per cent for 2021/22 that will be chargeable to the levy.

It highlighted these decisions as underscoring its commitment to maintain effective cost control alongside the delivery of a level of funding that allows pension bodies to operate effectively.

The response stated: “It is essential that the pensions bodies receive funding sufficient to allow services to be maintained.

“However, the government recognises that schemes are entitled to expect a level of cost control that takes account of developments in the external environment.

"It accepts that the environment in which schemes are operating is particularly challenging currently."

However, the government has acknowledged that the level of industry engagement that had been intended in a structural review of the levy had not been possible due to “unavoidable time pressures” flowing from the pandemic, with some respondents to the initial consultation raising concerns over this.

As such, it confirmed that if the restructuring is implemented, the government will monitor its impact and give consideration as to whether any further structural changes are needed “in light of experience”.

It also noted that a number of respondents had raised concerns around the Fraud Compensation Fund Levy, following the recent high court ruling that could affect the scope of the fund.

In response to this, the Department for Work and Pensions (DWP) confirmed that it is “currently considering” the implications of the judgement and an appropriate policy response, with an announcement to be made “in due course”.

Commenting on the proposals, Smart Pensions director of policy, Darren Philp, stated: "While an increase in the general levy is never welcome, especially during these tough economic times, we are pleased that the government has decided to proceed with the sensible option of more closely aligning regulatory costs with funds raised from the levy.

“While this doesn't wholly address the unfairness of the current levy formula, it is a welcome signal that we needed a new more proportionate approach for funding regulatory activities.

"While this latest announcement is as good as we could have hoped for, we would still like to see a more fundamental review of the levy, which also needs to encompass the Fraud Compensation Fund given the recent court case that extended its scope, and deliver better scrutiny of expenditure that the levy is financing."

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