The government is proposing to bring the general levy on defined contribution schemes into line with what defined benefit and hybrid schemes are paying, while extending the levy recovery period by three years. Master trusts would see the fastest rises. The consultation closes at midday on 8 September.  

In a consultation published on Tuesday, the Department for Work and Pensions said maintaining the 6.5% annual increase that has been in place for the last three years would not enable the levy to keep pace with the rising costs of the pension system.  

As pension reforms are set to create fewer and larger DC schemes, “with growing shares of membership and assets”, the department said that the distribution of levy costs is becoming more important, and that DC schemes will have to pay an equal share of the levy. The general levy recovers the funding provided by the government for the Pensions Ombudsman, the Pensions Regulator and the pensions activities of the Money and Pensions Service.  

The change in the balance of levy rates means more of it will be coming from master trusts in particular. Under the proposed approach, the levy for master trust and personal pension schemes would rise by 9% per year, while other DC schemes would see theirs increase by 6.2% a year. 

By 2029-30, revenue from master trusts will go up by about 67%, while personal pension revenue will increase by 29%. In comparison, revenue from DB schemes is projected to rise by about 12%. The smallest revenue boost is expected from DC schemes other than master trusts, at 3%. 

Some master trusts argue that the way the costs are recovered needs a rethink. Tim Gosling, head of policy at People's Pension, called the proposals “a missed opportunity” to redesign the levy as small pot consolidation is set to clash with the current per-pot system. 

 

“The small pots reform scheduled in the updated roadmap will sharply reduce TPR's forecast revenue from 2030, when the small pots consolidation regime is set to begin. The general levy is paid per pot, and the goal of government policy is to cut the number of pots in the system. DWP should think more broadly about the structure of the levy, not just the level of it.” 

Others are also unconvinced by the proposals. The president of the Society of Pension Professionals, Calum Cooper, said the scale of the proposed increases for master trusts raises questions about fairness and proportionality. 

“Government will need to demonstrate why these schemes should face the fastest increases and ensure that higher regulatory costs do not ultimately reduce value for pension savers,” he said. “The right approach is one that is sustainable, evidence-based and reflects the evolving pensions landscape – and these are the facts that the SPP are likely to make clear in its consultation response.”

The DWP expects to book a surplus of about £3.3m by 2033-34 within the levy, saying: “This marks a turning point from debt accumulation to active repayment, enabling the department to begin reducing the debt on its balance sheet over time.” 

It estimates that without these changes, “levy debt would exceed £260m by 2031”.

Eliminating the levy debt by 2030-31 as previously planned would mean imposing big rises in levy rates over a relatively short period, which is why an extension of the recovery period is also proposed. 

The government plans to publish the consultation response and lay secondary legislation early next year, to change levy rates from April 2027.