In December 2020, the Government launched a consultation on plans to restructure (and increase) the general levy, which funds the Pensions Regulator, The Pensions Ombudsman (TPO) and MaPS. The consultation noted a growing deficit between revenue from the levy and the cost of the activities which the levy was expected to fund. Therefore, it was clear that an increase to the levy was unavoidable.
Consultation outcome – new levy structure
The consultation outcome was published in March 2021 and, of the three proposals that were put forward, the greatest support was for the Government’s preferred option: to increase rates and introduce separate levy rates for DB, DC, master trust and personal pensions schemes. This approach makes the levy rates more representative of the differing supervisory involvement required by the respective scheme types.
With the industry response broadly mirroring its own expressed preference, the Government has unsurprisingly decided to enact the proposed approach without amendment.
Consultation outcome – new levy rates
The revised levy structure and rates have quickly been introduced in regulations, taking effect from 1st April 2021 and representing an immediate increase in rates from the April 2020 level for all schemes.
The regulations include a series of tables that detail the levy rates in force up to and including the financial year beginning in April 2023, with increases to the rates due to apply each year.
To enact the new levy structure, the increases introduced are steepest for DB and hybrid schemes, for which the rates will have more than doubled by 2023 / 24.
The levy will increase at a lesser rate for occupational DC schemes, while master trusts and personal pension schemes will see the lowest increases. The original consultation document suggested that further increases should be expected from April 2024 but plans for this will be determined later.
Consultation outcome – cost transparency
One issue raised by several of the respondents to the consultation was that the pension bodies funded by the levy should be subjected to tighter cost control, and there was a call for greater transparency of the increase in costs over recent years.
In response, the Government has determined to freeze the operating budgets of the Regulator and TPO at their 2020 / 21 levels for the 2021 / 22 financial year and reduce the element of MaPS 2021 / 22 funding, which will be chargeable to the levy.
Capita comment
Trustees should be aware of the increased rates that apply to their schemes and ensure that these are accounted for in their funding plans. This will be especially relevant for trustees of DB or hybrid schemes, where the changes to the rates will be most pronounced.
Please speak to your usual Capita contact if you have any questions on this issue.