Pension schemes face a levy hike next year as increased funding costs for public bodies are taking their toll.
According to a consultation published today (October 18) by the department for Work and Pensions, the general levy – paid by occupational and personal pension schemes – will need to rise to plug a forecast gap of £540m by 2029/30 under current rates.
This levy, which was last increased in 2008/09, recovers the funding provided by the DWP for the core activities of The Pensions Regulator, the Pensions Ombudsman and part of the activities of the Money and Pensions Service.
The rates were reduced by 13 per cent in 2012/13 and have since remained the same for most pension schemes, according to the DWP, while a lower levy rate for schemes with 500,000 members or more was introduced in 2017/18.
The levy is paid according to the number of members in the pension scheme, with different values for occupational schemes and personal/stakeholder plans.
The DWP stated there was a surplus of £24m in 2013, but this has been reduced to just over £2m since. By the end of 2019 the government expects a deficit of £16m, which is estimated to grow to £50m next year.
The development is largely due to levy rates not keeping up with inflation and an increase in funding for public bodies, the DWP stated.
In particular, the document stated that significant changes in the pensions industry and regulatory landscape; the government’s commitment to strengthening the regulatory framework and TPR’s powers to better protect pension scheme members; and increased demand for pensions guidance and dispute resolution had led to this situation.
Part of the upcoming work on the pension dashboards, led by Maps, will also be partially funded by this levy.
The government is therefore consulting on four options to increase the levy, favouring the first option, which would be an increase of 10 per cent of 2019/20 rates on April 1, 2020, with further increases from April 2021 informed by a wider review of the levy.
This wouldn’t impose significant burdens on the industry at short notice and would allow for more suitable solutions moving forward, it stated.
The DWP is also proposing a one-off increase to the annual levy contribution paid by schemes that have between two and 11 members, which remained unchanged since 2000.
For occupational pension schemes, this would rise from the current £29 to £75 per year per scheme; for personal pension plans, it would increase from £12 to £30 per year per scheme.
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