Is DWP shooting its own regulator in the foot

There are two “levies” that matter to occupational schemes. There’s the PPF levy which is still being charged to provide a safety net , despite that safety net being self supporting and largely irrelevant to most DB schemes.

Then there’s the general levy which is paid to DWP to support TPR, the Pension Ombudsman and the bit of MaPS that DWP pays for.

The DWP seem incapable of adjusting the law to allow the PPF to reduce its levy to the right amount. Which means the PPF gets stronger and stronger and has nothing else for it, but to become an unnecessary and unwanted  public consolidator.

Now they think they need an extra £100m a year to support TPR’s efforts to regulate a handful of master trusts, a diminishing number of increasingly solvent DB schemes and a long tail of very small DC schemes which aren’t pensions  in anything but name.

The Dunkirk problem

The £100m comes from schemes with less than 10,000 members that haven’t consolidated by 2026/27. It is a “Dunkirk problem” because there are up to 30,000 occupational schemes that have less than 10,000 members who would rather be consolidated or wound up rather than pay what they’ll se as a £10K fine for “being too small”.

Would anyone have set up a company pension scheme for the good of their staff if they knew that at some point in the future they would have to pay a £10k penalty for not having 10,000 members? Don’t forget that having 10,000 members means you are already paying well over £10,000 in per capita levies. This fixed penalty levy , is on top!

Winding up an occupational scheme, even a 2 or 3 person SSAS is no trivial matter. It needs various consents, a home for the money and lawyers. So – as with Dunkirk – we will find pension schemes awaiting evacuation whilst being strafed by enemy guns – in this analogy – threats with menaces from the people they are fleeing- the regulators.

Who are the 10,000 schemes that are expected to pay up?

The DWP estimate that there are around 10,000 schemes that will pay £10k for “small scheme” regulation – who are they?

there are around  1800 DB schemes with fewer than 100 members and another 2200 with fewer than 1000.  Few will be able to wind up in time.

The bulk of the regulators 32,000 schemes are DC plans and relatively few of these are properly workplace pensions. Most are SSAS and EPPs set up by entrepreneurial business people to provide them and their families with a tax incentivised succession plan where the proceeds of the business can pay one generation a pension and allow the next to take on the business with the prospect of a pension for themselves. Yes these are “executive pension plans” but they were set up for the long term and it is unfair for them to have to pay  this extra levy because TPR can’t find an efficient way of regulating them.

Because many of these SSAS schemes invest in the assets of the business that sponsors them, they cannot be unwound. Typically the SSAS owns the business’ premises.

They are the tanks on the beach that cannot be floated back to blighty, they and their beneficiaries are the sitting ducks, they have no option to pay up.

This is an exercise in persecuting the vulnerable. Has anyone thought this through? Was this idea discussed with TPR? Have any of the small DB and the illiquid SSAS’ been consulted – is there any impact assessment on option 3?

Other options are available?

The cost of MaPS, PSO and TPR is dependent on the need for its regulation. Recently, the risk based paranoia that besets pension scheme has led to the Pension Regulator calling for greater powers to stop companies spending money which could be paid into a pension, stopping pension scams, stopping poor administration and stopping people losing their pension pots because they haven’t a dashboard. All of these are legitimate functions of a regulator looking to protect “savers” and “protect the PPF”.

Except that is, that DB schemes are mostly solvent, scammers are much cleverer than regulators and poor administration is so rife that the Government can’t see its way to resetting the dashboard. In short , the extra powers TPR have got, are getting or want, ae not powers they can do much with. At 900 people, TPR is a huge quango with a diminishing scheme-base. Option one is for TPR to stop its search for lebensraum and retreat to its original borders.

The second option that TPR should explore, is to create a landscape fit for consolidation. So far it has made a mess of superfunds and has failed to get a single scheme consolidated the superfund way. It is now hoping that PPF could do for DB what Nest did for DC and assume a public obligation to wind up the 4,000 small DB schemes. But while Nest could be primed with a billion pound DWP loan, the PPF would have to have a crown guarantee that the state would be the insurer of last resort if PPF (the consolidator) became a thing.

The PPF seem intent on not letting superfunds make money (or extract profit as they gracelessly call it). They also seem keen to keep “la porte etroite” Gateway that means superfunds can only prospect a tiny proportion of the available market. Finally they can’t even be bothered to write into their superfund guidance, the legislative intent signalled by the DWP in its Mansion House DB consolidation response.

A land fit for consolidation

If the aim of the DWP is to cut back the number of schemes , improve member outcomes and reduce the strain of regulation on the public coffers. It needs both carrot and stick. The longstop may be a small scheme penalty but 2026/27 is not a longstop, it is where the wicket-keeper stands.

Plan A was not to fine the weak and vulnerable but to give them a means to consolidate with the strong and confident. Insurers, superfunds (with the PPF as the longstop) could provide a land fit for consolidation.

Instead, we have a trickle of the 4000 schemes buy-ing out , none consolidating with superfunds and the PPF, sitting like Croesus on a pile of money it has no use for.

Even Croesus would have envied the PPF

The answer is not more levies but less schemes , more VFM and less regulators.

Leave the entrepreneurs to manage their wealth in SSAS. Do not destroy established businesses in the hope of building new ones.

Help small DB schemes consolidate by making it easy for consolidators to take them on. Encourage capital backed journey plans while you get your act together on superfunds. And as for the larger DB and DC schemes who do not want to sell their members into annuitisation, make sure that their employers can find ways to sit within master trusts and superfunds – comfortable that their staff and former staff are being properly looked after.

The insurers will do the rest.

Is the DWP shooting TPR in the foot?

Option 3 (see table above) is one of the most radical legislative ideas ever to hit pensions. It is the nuclear option – it will see the small occupational scheme run for cover where there is no cover. It will lead to chaos.

It is easy to construct a narrative where the DWP are simply asking for me, and others like me – point our fingers and say “TPR – you brought this on yourself”. That’s what I mean  by shooting the regulator in the foot.

It could of course be that one half of the DWP doesn’t know how occupational schemes live and thinks that an ultimatum will wake dozy trustees up. If that’s how the DWP think, they ought to get real and speak to a few trustees, advisers and lawyers.

One thing that can come out of  all this stick-waving is that we needs some carrots fed to consolidators – and quickly.

Jam tomorrow?



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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