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The government will increase the general levy by 6.5% a year for all scheme categories over the next three years, abandoning a proposal to charge small defined contribution schemes an extra premium of £10,000 that was its preferred option.
The general levy reimburses the Department for Work and Pensions and covers running the Pensions Regulator, the Pensions Ombudsman Service and pensions-related work of the Money and Pensions Service.
Levy funding was projected to reach a deficit of £205m in 2030-31 without any increases because of the expanded activities of the three bodies that it finances. Following the consultation in October last year, the government has now decided to move forward with an increase in the levy by 6.5% a year for all schemes from April.
The DWP’s preferred option would have increased rates by 4% per year for all and ‘signalled’ an additional premium of £10,000 for schemes with fewer than 10,000 members from April 2026, which would likely have pushed small schemes to consolidate. Industry described this measure as punitive, however, and only three respondents to the consultation were in favour of it.
The DWP said “from the consultation responses, it has been made clear that this is not the industry’s preferred approach to remedying the deficit and that certain elements would need to be changed to make this option appropriate”.
Industry criticised the impact of such a charge on small self-administered schemes and small businesses.
Several responses agreed that consolidation was a positive move for the pension industry, the DWP added, but “the consensus was that 2026-27 would be extremely difficult for schemes to meet the premium payment deadline”. It adds, ominously, that this option has therefore not been chosen “at this time”.
A further option – leaving levy rates unchanged – was dismissed by the government itself as unworkable given the growth in costs.
The Occupational and Personal Pension Schemes (General Levy) (Amendment) Regulations 2024, which amend the 2005 regulations, have been made and laid before both Houses of Parliament.
Would your scheme have been impacted by the £10,000 levy charge?
