The UK’s Pension and Lifetime Savings Association (PLSA) has registered significant concern about the options proposed by the government for raising the general levy on pension schemes.
It singled out the option that calls for a 45% increase in the levy in 2020 and a further hike of 245% in 2023.
The levy funds activities by The Pensions Regulator, the Pensions Ombudsman and the Money and Pensions Service.
The PLSA said it was a strong supporter of good, proportionate regulation but that it had concerns about the extent of the levy increase, the short notice given, the lack of transparency about how the deficit has built up and how costs were apportioned.
The Department for Work and Pensions (DWP) launched a consultation on the general levy increase on 18 October, which ran until midday on Friday.
In the consultation document the DWP said the balance of the levy was in deficit to the tune of more than £16m (€18.8m) in 2019, estimated to grow to more than £50m by 2020.
The PLSA called for the government to conduct a full structural review of the general levy alongside the fraud compensation levy, provide greater transparency about the deficit and forecast costs, and develop greater accountability for costs and impacts.
“We have to question the planning and cost management”
Nigel Peaple, director of policy and research at the PLSA
Nigel Peaple, director of policy and research at the PLSA, said: “We have to question the planning and cost management that has resulted in DWP asking for a triple digit increase in the general levy. This is very disappointing given the high standards of transparency and governance the very same regulatory bodies it manages demand from pension schemes.
“The most appropriate way forward now is to freeze the levy at current levels until such time as a full and thorough structural review can be conducted to ensure schemes are not hit by unfair or sharply rising costs.”
DB scheme health declines on LGIM metric
A typical defined benefit (DB) pension scheme can expect to pay 93.7% of accrued pension benefits as at the end of September, on the basis of a measurement of DB pension schemes’ health by Legal & General Investment Management (LGIM).
The value for the “expected proportion of benefits met” metric is down 1.3% on the previous quarter. The calculation takes into account different economic scenarios of the future.
John Southall, head of solutions research at LGIM, said the 1.3% drop was mainly driven by a substantial fall in interest rates, which had a negative impact on schemes that had not fully hedged themselves against moves in bond yields.
John Roe, head of multi-asset funds at the asset manager, added: “The collapse in global bond yields, driven by the Federal Reserve’s pivot to cut interest rates, is an unwelcome reminder that UK interest rates and inflation remain outsized risks for many UK defined benefit pension schemes.”