The Department for Work and Pensions has proposed changes to the levy on occupational and personal pension schemes, which providers have said will drive up costs for scheme members.
In a consultation, published yesterday (October 2), the DWP said there was ongoing deficit in levy funding and gave options for mitigating this over the next three tax years.
The levy funds The Pensions Regulator, the Pensions Ombudsman and the pension side of the Money and Pensions Service.
The DWP said that without action, the levy was expected to have a deficit of more than £200mn by the end of 2030-31.
In the longer term, the DWP said it will explore how TPR could be fully funded by the pensions sector.
It said: "The pensions industry has benefitted hugely from the inflow of auto-enrolment members and the government therefore accepts that the sector, rather than the taxpayer, should pay for the employer compliance regime."
As a result the DWP will seek views on the options for implementing this in a future consultation.
The DWP said the levy needed reform and to be increased because of the “increasing span of activities carried out by TPR, TPO and Maps positively support government objectives, pensions schemes and savers”.
Therefore it has set out three options for how to reform the levy.
But some have warned that all of the options will see costs to scheme members increase as the costs are passed on.
Nathan Bridgeman, director at SeaBridge Ssas, said: “The increased costs this will result in will add costs to scheme members. The extra costs administrators of schemes will need to be passed on.”
The options
The first option is to continue with the current levy rates and levy structure.
This would freeze rates until tax year 2026-27 and retain the four categories of rate payer:
- defined benefit schemes
- defined contribution schemes other than master trusts
- master trusts
- personal pensions schemes
But this would see the levy deficit continue to grow, requiring greater rises at a later date.
The second option is to keep the current levy structure but to increase rates by 6.5 per cent each year.
The DWP said this way would bring the deficit back into a compliant level by 2031.
The final way is to increase rates by 4 per cent each year and have an additional premium rate of £10,000 for small schemes (with memberships up to 10,000) from 2026.
DWP said: “This premium allows for a lower initial increase across all schemes, while still paying off the deficit, and supporting the consolidation of smaller schemes.”
But Bridgeman warned this method could be detrimental to workplace small self-administered schemes.
He said: “The DWP need to clarify that this doesn’t apply to Ssas or give Ssas exemptions as £10,000 for a scheme with less than 12 members will be unaffordable.”
amy.austin@ft.com
