Rather than assume malicious intent, I think there's a very reasonable explanation for this policy: it avoids the Peter Principle. If someone is content to stay at their current level, that's fine, they can stay there. But if they want a promotion, they need to show that they have the skills that are expected at that level.

The company has to decide if they want some people to permanently hold positions beyond their capabilities (Peter Principle), some people to temporarily hold positions below their capabilities (while working towards a promotion), or if they want to regularly demote people who aren't able to do their job.

Demotions absolutely kill morale, as does having a bunch of unqualified people in high-level positions. The least bad option is to require people to do the work of the position they want to hold.