Department for Work & Pensions  

DWP proposes reduced levy for biggest pension providers

DWP proposes reduced levy for biggest pension providers

The Department for Work & Pensions has proposed cutting the regulatory levies paid by very large pension schemes by 25 per cent, in a move that would affect only a handful of multi-employer schemes.

The "general levy" funds The Pensions Regulator, The Pension Advisory Service, and the Pensions Ombudsman. It applies to all schemes that fall under TPR's jurisdiction.

DWP estimated it would have a £13m surplus in at the end of the 2016 to 2017 financial year, and as a result proposed cutting the levies paid by schemes with more than 500,000 members by 25 per cent.

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In a consultation paper, the DWP considered cutting the levy for all schemes but tilted away from this proposal on the grounds that large schemes paid a disproportionate amount per member.

"An occupational pension scheme with one million members currently pays a levy charge of £860,000 – a charge 70 times larger than is applied to a scheme with 10,000 members paying a charge of £12,300," the consultation paper stated. 

"Yet the larger scheme is most unlikely to receive 70 times the supervisory effort that is directed towards the smaller scheme by the pensions protection regime."

Instead, the DWP favoured charging a per-member levy for schemes with more than half a million members at a rate 25 per cent lower than that for schemes with more than 10,000 members.

DWP said around 10 TPR-regulated pension schemes have more than half a million members. They include The People's Pension, Now: Pensions, and the government-sponsored National Employment Savings Trust (Nest).

Graham Peacock, managing director of auto-enrolment provider Salvus Master Trust, questioned the move.

"At a time where the TPR are being given additional powers which will mean additional resources I don’t understand the logic of this move," he said. 

"With capital adequacy now being brought in I don’t see why a reduction in TPR levies is being introduced."

He predicted that very large master trusts would use up more ombudsman and Tpas resources in the future.

Allan Maxwell, director of Corporate Benefits Consulting, questioned the DWP's reasoning, saying it seemed "a bit unfair on smaller schemes".

"I find it hard to believe that schemes should be treated differently. You pay what you can afford."

Asked whether he thought this would increase the likelihood of smaller schemes merging with larger ones, he said:

"I think consolidation is an inevitability. A lot of the schemes will simply not be cost effective. But TPR doesn't need to push any harder," he said.

The consultation period ends on 18 January 2017.

james.fernyhough@ft.com