The Government has launched a consultation on restructuring the general levy paid by pension schemes.
The general levy recovers the funding provided by the DWP in respect of The Pensions Regulator, the Pensions Ombudsman and the Money and Pensions Service.
The levy rates are set in regulations and are reviewed annually by the DWP. The rates were last increased in 2008 / 09, were reduced by 13% in 2012 / 13 and have been at the same level since then.
Due to historic shortfalls between the amount recovered and the costs of funding these bodies, the levy deficit is expected to reach approximately £80m by March 2021.
Amendment regulations were laid in February 2020 that would have increased the levy rates by 10% from 1st April 2020 to begin to address the levy deficit that had accumulated.
These regulations were subsequently revoked as a result of the Covid-19 pandemic.
Causes for the increase in costs funded by the levy include the Government’s reforms to strengthen the Regulator’s powers to protect members from unscrupulous employers, increased demand for pensions guidance and dispute resolution, and the new work being done to develop pensions dashboards.
The new consultation, which closed on 27th January 2021, seeks views on the Government’s three proposed options for change to the general levy’s structure and rates for the next three years, from April 2021 onwards.
The three options are:
The consultation makes it clear that the Government favours the first option, noting that it would reflect the differing levels of supervisory attention better, but the levy would still be based on how many members are in a scheme.
The effect of the preferred option will be that, by 2023 / 24, the levy payable by a DB or hybrid scheme would more than double.
This can be compared with a DC scheme paying around 50% more in 2023 / 24 than now, while Master Trust and personal pension schemes look to have an increase in the region of 7% to 10%.