The Society of Pension Professionals and the Association of Consulting Actuaries have separately raised concerns about the government’s proposal to charge an extra fee of £10,000 to schemes with fewer than 10,000 members, saying it will have a detrimental impact on both schemes and members. 

 

The general levy is set annually and reimburses the Department for Work and Pensions for the cost of running the Pensions Regulator, the Pensions Ombudsman Service and pensions-related work of the Money and Pensions Service.   

 

In early October, the department launched a consultation on three options for tackling the projected £205m deficit it says will accumulate by 2030-31. Its preferred option includes a new £10,000 premium on small schemes starting in 2026 to give schemes time to consolidate. It argues small schemes tend to be less well run and should be encouraged to merge into larger funds to access more investment opportunities and better governance. 

 

The SPP, responding to the consultation, has now raised “significant concerns” with this option, and is calling on the DWP to explore an alternative option that simplifies the levy without being “punitive” to small schemes - namely to retain the current structure and apply a 6.5% increase per year, as in the second option the department listed. 

 

Faye Jarvis, who chairs the SPP’s legislation committee, said: “We are concerned this proposal will be punitive to small schemes, take no account of how well governed they are and ultimately have a detrimental impact on the members of some schemes.” 

 

Jarvis added: “There are some schemes that cannot wind-up or wind-up quickly, and so have no means of mitigating the impact of this cost. We urge the DWP to reconsider its approach, working with industry on more nuanced reforms, without unjustly penalising small or responsible schemes.’’ 

 

A £10,000 additional premium also “appears to generate a large surplus by 2030-31, even factoring DWP’s assumptions on consolidation”, according to the SPP. 

 

 

The Society added while a desire for more consolidation seems to be behind the government’s proposal to charge small schemes more, it believes that consolidation is not necessarily the right option for all small schemes. 

 

It cited small self-administered schemes holding illiquid assets that can’t easily be sold or transferred, and schemes that offer guaranteed annuity rates or investment returns that would be lost if members transferred to another scheme.   

The existing value for money assessments of defined contribution schemes already aim to drive consolidation, it added, while for small defined benefit schemes, “the options for consolidation are limited, and the arguments for doing so are more nuanced”.  

 

Like the SPP, the ACA also favours option two in the consultation, of raising the levy by 6.5% a year. 

 

The chair of the ACA’s pension schemes committee, Peter Williams, criticised what the ACA considers a lack of transparency by the DWP. 

 

“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,” Williams said. “We think that DWP owes it to levy payers to be much more transparent about these matters.” 

 

The DWP should also set out what the general levy should look like once the deficit has been recovered, the ACA said, and the planned level of increases going forward. 

 

Williams said applying a £10,000 premium on small schemes would be “exceptionally harsh” and questioned if such a charge would be in keeping with the legislation, which 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,” he said. 

 

“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,” Williams argued. 

 

The consultation on the general levy closes at 11.45pm on 13 November. 

 

 

What’s your preferred option for recouping the deficit in the levy?