- Will the DWP’s general levy proposals price smaller pension schemes out of existence?
- Pensions Regulator issues first climate change reporting fine
- Nest scheme annual report now available
- Lifetime allowance – keep, abolish or reinstate?
Will the DWP’s general levy proposals price smaller pension schemes out of existence?
The DWP is looking to put through another hike in the general levy with its preferred option including a £10,000 additional premium for every DB and DC scheme with less than 10,000 members.
The general levy funds the core activities of the Pensions Regulator, the activities of the Pensions Ombudsman, and the pensions-related activities of the Money and Pensions Service.
The levy was previously increased substantially between 2021/22 and 2023/24 (see Pensions Bulletin 2021/11). The increases put through then were to repair a deficit, with a promise then (in a low inflationary environment) to keep future spending under control.
In this new consultation the DWP acknowledges that, due to various Government initiatives, the levy-funded pension bodies have seen continuing change and growth and, therefore, an increase in expenditure. As a result, more is needed to bring the levy deficit under control. The DWP therefore puts forward three options for the general levy between 2024/25 and 2026/27:
- Continue with the current levy rates and levy structure – but this would see the levy deficit continue to grow, reaching nearly £205m in 2030/31
- Retain the current levy structure and increase rates by 6.5% for each of the three years – this will eliminate the deficit by 2030/31
- Increase rates by 4% for each of the three years and, in addition, charge schemes with memberships up to 10,000 a further £10,000 each in 2026/27 (which by itself could raise £100m if 50% of such schemes fail to wind up). This approach, whose intent is to force consolidation by smaller schemes, would pay off the deficit by 2030/31
Consultation closes on 13 November 2023. Whatever the decision, regulations will need to be laid before April 2024 as the 2021 regulations expire by then.
Comment
The Government’s favoured option is not supported by any evidence that the smallest of schemes take up a lot of these bodies’ time. It’s just a backdoor way of forcing DB and DC consolidation without having to go to the trouble of legislating for it, which if successful will mean that the general levy deficit remains unaddressed. We expect there to be strong objections to this proposal from smaller schemes and those who advise them.
Pensions Regulator issues first climate change reporting fine
The Pensions Regulator has announced that it has fined the trustees of the ExxonMobil Pension Plan £5,000 for failing to publish, by the deadline, a report on their management and governance of climate-related risks and opportunities, as required by regulations finalised in June 2021 (see Pensions Bulletin 2021/24). However, this is no more than a technical failure as the report had been produced by the deadline, with it not being published in time due to an administrative error.
The Regulator has also published a regulatory intervention report which reveals that the administrative error was simply providing a faulty URL to the report, so that technically it had not been “published” by the 31 July 2022 deadline. After being contacted by the Regulator the trustees quickly resolved the error and it was available to view on 10 August 2022.
Comment
This is hardly a proportionate response by the Regulator to an honest oversight that was quickly rectified. The Regulator says that a penalty is mandatory which is true, but was doubling the minimum and advertising the failure necessary? However, it does provide an illustration of where things can go wrong on uploading material to websites – something that schemes are increasingly required to do by disclosure law. And, the Regulator says that from now on it is going to name in its compliance and enforcement bulletins, every scheme that receives a penalty for failing to publish its climate change report.
Nest scheme annual report now available
The Nest pension scheme’s annual report and accounts for 2022/23 has become available on Nest’s website, some six months after the end of the scheme year and so within the seven month statutory deadline. It has appeared somewhat later than usual, and without any publicity. The Nest Corporation’s annual report and accounts for 2022/23 is promised for later in 2023. It is not clear why this has been delayed.
Once more, this state-subsidised retirement savings vehicle has grown in terms of membership and assets. Over the 12 months to 31 March 2023 Nest’s contributing membership grew from 3.7m to 3.8m, whilst its non-contributing membership grew from 7.4m to 8.2m. Assets under management grew from £24.4 billion to £29.6 billion – with this growth being predominantly from contributions. However, in common with many other DC schemes, Nest experienced negative investment returns for the year ending 31 March 2023.
We wait for Nest Corporation’s annual reports and accounts which, amongst other things, should reveal the current total Government loan, when Nest can expect to cover its operating costs from scheme member charges, and when it can expect to repay the loan.
Comment
Nest proudly says that as at 31 March 2023 it was investing pension savings for about 36.5% of people in employment in the UK. However, approaching 70% of Nest’s 12 million members are no longer having their Nest DC pots topped up by contributions. Disappointingly, the report does not contain any analysis of the range of pot sizes, which as at 31 March 2023 will have averaged out at around £2,500. It seems highly likely that there will be literally millions of Nest members with very small pots.
Lifetime allowance – keep, abolish or reinstate?
The Society of Pension Professionals has published a short paper that examines the features of the Lifetime allowance (LTA) and discusses the potential consequences of retaining it, abolishing it (as the Government intends and with draft Finance Bill clauses issued for consultation in July 2023 – see Pensions Bulletin 2023/30) and reinstating it after abolition.
In relation to its potential reinstatement (as promised by Rachel Reeves, Labour’s Shadow Chancellor), the paper points to recent survey findings suggesting that pension savers and advisers expect the LTA to be reintroduced in some form at some point in the future.
Comment
Given the substantial poll lead being enjoyed by the Labour Party it is no surprise that many expect the LTA to make a return, but assuming that the Government achieves its abolition aim in next year’s Finance Bill, it is not clear how such a reversal will be achieved by an incoming Labour Government.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
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