Some of the UK's biggest workplace pension schemes have hit back at demands their members contribute the most to a fraud compensation pot, saying they pose the lowest risk of claiming.
Members of master trust workplace pension schemes will be paying around 25 per cent of the Fraud Compensation Fund (FCF) levy.
Yet these scheme assets only represent 3 per cent of the total money potentially exposed to fraud, the UK's third largest workplace pensions provider Now: Pensions has said.
The People’s Pension, the second biggest employee pension, and trade body the Pensions and Lifetime Savings Association (PLSA) have shared similar views in their responses to the consultation on master trusts regulations.
They call this a levy a tax on auto-enrolment - the government initiative to get every UK worker saving into a pension, largely via these master trusts - which creates an imbalance among savers.
Draft regulations published in November by the Department for Work & Pensions (DWP), detail new rules that will come into force on how master trusts pay into the FCF levy, which compensates eligible work-based pension schemes where the employer is insolvent and the scheme has lost out due to offences involving dishonesty.
This fund is managed by the Pension Protection Fund, the pension scheme lifeboat, and includes contributions from both defined benefit and defined contribution schemes.
Even though the new rules limit the levy fee to 30p per pot, they create distributional problems, the auto-enrolment pension providers argued.
Now: Pensions said: “The proposed regulation attempts, but fails, to take account of this imbalance by inserting a cap of 30p on the levy for authorised master trusts, in contrast to the current cap on other schemes of 75p.”
For a member with a £350 fund, a levy at the 30p cap proposed represents in excess of 8 basis points, and has to be found out a charge cap of 75 basis points, the master trust said.
“At Now: Pensions our charges are considerably lower than the statutory cap, so 8 basis points is a very large sum for our members," a spokesperson said.
“If this was a voluntary insurance, our trustees would reject the concept of paying 8 basis points for a member protection that members are very unlikely to claim on as unacceptably poor value for money.”
Darren Philp, director of policy and market engagement at The People's Pension, said that the levy is “clearly unfair and inequitable and means that those with small pots and low contributions are effectively cross-subsiding other pension savers”.
He added: “Using number of members as the basis for a fee creates an inevitably regressive system, and we believe that the DWP needs to urgently look at this, to ensure a fair system of financing the fund that takes into account both the new authorisation regime and the potential assets at risk between different types of pension scheme.”
The PLSA also noted that many scheme members will pay the levy twice since they have pension pots in different providers.
In 2017, the PPF raised the levy per member to 25p, which is the highest it has ever charged, in preparation for an expected spike in fraud-related compensation claims.
This levy isn't paid every year. Instead, the PPF decides when it needs to raise more money for the fund.
Due to this, and because of the exceptional reasons regarding master trusts previously mentioned, Now: Pensions said that it would seem more appropriate to limit the levy to 25 per cent of the amount charged to schemes that are not authorised master trusts.
Mr Philp added: “The basis for calculation ought to be revisited and DWP have scope to do so, should they wish to exercise it.”
maria.espadinha@ft.com
