Government proposes to cut administrative fees for pension schemes

If approved, the reduced rates outlined in a DWP consultation (14-page / 106KB PDF) would apply to the general pensions levy and the Pension Protection Fund (PPF) administration levy from 1 April 2012.

The rates for both levies have remained unchanged since 2008/9.

The general levy would be reduced by at least 12%, while the PPF levy would be reduced by at least 25%, the consultation said. These reduced rates would apply to all future years, subject to an annual statutory review.

The general levy is charged on all eligible occupational and personal pension schemes. It covers the administration costs of the Pensions Ombudsman and Pensions Advisory Service, as well as some of the administration costs of the Pensions Regulator.

The PPF administration levy is paid by eligible defined benefit pension schemes, which promise a set level of pension once an employee reaches retirement age no matter what happens to the stock market or the value of the pension. It covers the costs of the PPF in relation to its Pension Protection and Fraud Compensation Funds.

The PPF provides compensation to pension scheme members whose employers have become insolvent, meaning they can no longer afford to pay the pensions they promised. It supports a total of 283 pension schemes, representing close to 75,000 people.

Figures published earlier this week showed that the PPF had accrued a surplus as of March 2011. In its annual report (96-page / 2.4MB PDF) the PPF reported that it was 105.1% funded compared with 103.3% at the same time last year. It also had a surplus of £678 million over its liabilities, it said.

Chief executive Alan Rubenstein said the figures showed the benefit of the PPF's low-risk investment strategy.

"The period since the end of March 2011 has seen difficult times in the financial markets and this has affected our funding, although we have fared better than other pension schemes because of the nature of our investment strategy," he said.

Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, agreed that the PPF appeared to have made some good investment returns against a difficult economic backdrop.

"This is good news for the PPF, and potentially for those who pay the levy," he said.

The amounts the Government is proposing to cut will generally be small in comparison with the main PPF levy, which funds the scheme. At the end of September the PPF announced that this levy would also be cut. It is to be capped at £550m a year from 2012/13 - £50m less than the amount needed to fund the scheme this year. This is the second cut to the total levy in two years, according to PPF figures.

The PPF also recently consulted on the new framework it will use to calculate the total amount charged to pension schemes, which will come into force in 2012/13. The rules will be fixed for three years instead of changing every year as was previously the case, meaning that the bill to individual schemes will be more predictable and will fall if the risk to the scheme is lessened.

Editor’s note 9/11/11: This story was changed to remove inaccurate figures relating to the measure of inflation in public sector pensions.