The Department for Work and Pensions is seeking views on the general levy to prevent the levy deficit reaching £205m by 2030-31. It proposes three options, including one where schemes with fewer than 10,000 members would have to pay a £10,000 premium. The consultation closes at 11:45pm on 13 November. 

 

The general levy reimburses the DWP and covers running the Pensions Regulator, the Pensions Ombudsman Service and pensions-related work of the Money and Pensions Service. It is normally set annually and based on the number of scheme members, with larger schemes paying less per member. Defined benefit, defined contribution schemes that are not master trusts, master trusts and personal pensions schemes all have different rates. 

 

In the consultation issued on Monday, the DWP said it is raising awareness of the ongoing deficit in levy funding, noting that “without any increases, the cumulative deficit would reach nearly £205m in 2030-31 as expenditure outstrips levy revenue. This does not meet the policy intent that the pensions industry, rather than the taxpayer, should pay for the pensions bodies, and is not in line with the previously stated plan of increasing the levy rates to bring down the deficit.” 

 

It proposes three ways to move forward over the next three tax years, from 2024-25 through to 2026-27, agreed by ministers, and is now looking for industry input. The DWP also wants to understand how pension schemes would absorb higher costs, or if they would pass these on to members or employers. 

 

Option 1 is to continue with the current levy rates and structure, freezing rates at this year’s level until tax year 2026-27 and retaining the four categories of ratepayer. 

However, “this would see the levy deficit continue to grow, requiring greater rises at a later date” noted the DWP. 

The second option would retain the current levy structure but increase rates by 6.5% per year. According to the DWP, this option would “bring the cumulative deficit back into a compliant level by 2031”. 

 

The third option would make it more expensive to run small schemes. It would increase rates by 4% per year for all and “signal” an additional premium of £10,000 for schemes with fewer than 10,000 members from April 2026. This premium allows for a lower initial increase across all schemes, while still paying off the deficit and supporting the consolidation of smaller schemes, the department said. 

 

“Most schemes with under 10,000 members have two to 11 members and are frequently found in research to have lower governance standards, lower knowledge and awareness of pensions and low compliance levels,” the DWP writes. 

“We know schemes can optimise returns from a balanced portfolio, with scale helping to increase the investment opportunities available to them,” it argues, adding that introducing the premium payment in 2026 allows smaller schemes to consolidate and giving them “two years to consider whether this is in their members’ interest”. 

 

 

The “significant” deficit arose because of “several years growth in our pensions bodies’ activity and previous decisions to delay increasing levy rates”, the DWP writes in its consultation.  

 

In 2020, a remediation plan was agreed by the government with the aim of closing the deficit by 2030-31. The government had previously protected schemes from increases for eight years, even though expenditure exceeded revenue throughout that period. 

 

The DWP cites “stronger regulation, as well as providing access to more comprehensive guidance and complaints services for members of the public” as reasons causing the rise in outgoings by the three funded bodies.  

 

TPR is working on several large projects, including on financial stability with other regulators following the liability-driven investment crunch last year, as well as undertaking joint work with the Financial Conduct Authority on value for money. It is also supporting schemes in complying with pensions dashboard requirements and is generally being more proactive in pursuing schemes that do not comply with its rules. Not least, it needs to upgrade its IT systems. 

 

The ombudsman, meanwhile, has had to deal with a steep rise in cases, and it set up a Pensions Dishonesty unit in 2021 because of the proliferation of pension scams. Extra costs have also been incurred because of a cyber attack on TPO this year which meant it had to rebuild its IT systems. 

 

MaPS continues to work on its pensions dashboard and developing a Retirement Planning Hub to support people. It is also working on digital Pension Wise appointments, where people can “explore their options for their DC pots online” and has developed its consumer-facing ‘MoneyHelper’ brand.