While acknowledging the need for a levy to support these institutions, the SPP has significant concerns with the proposed option (option 3 of the consultation) to increase rates by 4% per year with an additional premium of £10,000 for “small schemes” (up to 10,000 members) from 2026. This additional premium will be particularly punitive for small schemes irrespective of how well-governed they are. It is also likely to have a detrimental impact on members, as for DC schemes the additional cost may be deducted from members’ accounts and for DB schemes it reduces resources that might otherwise be invested in improving governance, communication, and/or benefit security. Our preference would be to retain the current structure with a 6.5% increase per year as laid out in option 2 of the consultation.
It would appear from the consultation that one of the reasons option 3 is the preferred approach is that it could drive further consolidation of small schemes. However, consolidation is not necessarily the right option for all small schemes. For example, small self-administered schemes (SSAS) holding illiquid assets that can’t easily be sold or transferred or schemes that offer guaranteed annuity rates or investment returns that would be lost if members transferred to another scheme. There are already measures in force that require DC schemes that do not provide value to members to consolidate, so we consider applying a punitive levy to be unnecessary. For DB schemes, the options for consolidation are limited, and the arguments for doing so are more nuanced. We also note the proposed option 3 appears to generate a large surplus by 2030-31, even factoring DWP´s assumptions on consolidation.
The SPP encourages DWP to explore an alternative option that simplifies the levy and is not punitive to small schemes.
Faye Jarvis, Chair of the SPP Legislation Committee commented: “We are concerned this proposal will be punitive to small schemes, take no account of how well-governed they are and ultimately have a detrimental impact on the members of some schemes.
“There are some schemes that cannot wind-up or wind-up quickly, and so have no means of mitigating the impact of this cost. We urge the DWP to reconsider its approach, working with industry on more nuanced reforms, without unjustly penalising small or responsible schemes.’’
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