The burden of pension cost regulation is disproportionately falling on master trusts, according to new analysis.
The People’s Pension claims pensions regulation is “unfairly” subsidised by master trusts. It says that the current payment structures mean that going forward 10 master trusts will pay at least 25 per cent of the total general levy, despite holding only 2 per cent of assets.
This levy is applied on all occupational and personal pension schemes to pay for regulators and ombudsman. However the exact fee paid depends on the number of members in the scheme, rather than value of assets under management.
This means many of the larger multi-employer master trusts – which might have many thousands of members paying just minimum AE contributions – are paying more than many occupational schemes that have far larger assets.
At present the largest pension fund in the UK, which has just 450,000 members but assets of £60bn, pays a levy of around £390,000. In contrast the People’s Pension which has much lower assets under management would be liable for levy of £2.9m.
The People’s Pension calculated that by 2020-21 it will be paying around 7 per cent of the total general levy, as it is currently calculated, despite having assets of just £8bn.
The People’s Pension director of policy Gregg McClymont, who is also chair of the master trust committee at the PLSA called for reforms in the way this levy is calculated.
He says: “The General Levy is no longer fit for purpose. The per member structure made sense in a world of long- term employment, where a smaller proportion of the workforce had access to workplace pension saving. But auto-enrolment is a small pot-creation machine, because it’s, rightfully, brought in a new group of people with lower earnings who move from job to job much more frequently. It’s completely unfair that these savers carry the heaviest regulatory burden, with master trusts paying the highest cost.
He points out that the government is proposing further increases to the General Levy – with one option which would see The People’s Pension’s bill rise by 245 per cent over three years.
“The Government’s latest proposals would see these already unfair costs rise exponentially, with many providers left with little choice but to pass the cost directly on to their membership.
“The burden of levy payments carried by schemes with many members but few assets is perverse. We’re calling for an immediate review of the structure of the Levy and believe that for transparency purposes the Government should provide a breakdown of regulatory costs by pensions sector.”