The Department for Work and Pensions (DWP) has proposed raising the levy on pension schemes to fund regulatory bodies, drawing criticism from trade groups over the uneven impact on master trusts.
The consultation, published this week, suggests a 6.2% increase for defined contribution (DC) pension schemes, excluding master trusts, and a 9% hike for master trusts and personal pension providers. The levy funds the Pensions Regulator, the Pensions Ombudsman, and the Money and Pensions Service.
Government defends funding model
The DWP states the increases are needed to cover a £154 million shortfall and ensure stable funding by 2036. Pensions minister Torsten Bell described the changes as part of a broader effort to align the levy with the government’s reform plans, including new responsibilities like overseeing collective defined contribution schemes.
“Our aim is a transparent approach and a stable framework within which schemes and employers can plan,” Bell said in the consultation’s foreword. “In return, levy-funded bodies must continue to drive efficiency and show clear value for money.”
The department noted that while the levy has risen by 6.5% annually over the past three years, this rate would not keep up with growing regulatory costs. The proposed increases, it argued, would prevent further shortfalls without overburdening any single group. The levy should be fair, transparent and aligned with government policy for the pensions market.
Industry groups criticize higher rates for master trusts
Trade bodies have opposed the plan, particularly the higher rate for master trusts. Pensions UK and the Society of Pension Professionals (SPP) say the proposal worsens an existing imbalance in cost distribution.
Zoe Alexander, Pensions UK’s executive director of policy and advocacy, said master trusts already carry a heavier share of costs under the current system. The new rates, she warned, would deepen that gap without addressing the underlying issue: the absence of a promised structural review of the levy.
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“We continue to believe that any further increases should be part of that broader review,” Alexander said.
Calum Cooper, president of the SPP, shared similar concerns, questioning whether the 9% increase for master trusts was justified. “A sustainable funding model is important, but the scale of the proposed increases for master trusts raises legitimate questions about fairness and proportionality,” he said. “The 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.”
The dispute over the levy’s structure is not new. The SPP will argue in its response that changes should be evidence-based and reflect the evolving pensions setting. Cooper noted that the government has sought input on the levy three times, yet a full review—first promised years ago—remains unfinished.
The consultation ends in early November, with the DWP expected to finalize the new rates by early 2025. Industry opposition suggests the government will need to justify why master trusts—already under strict oversight—should face the largest increase.
For now, the DWP maintains that the levy must match regulatory demands, even if adjustments are uneven. Whether this stance holds or backlash forces a revision may depend on how well the government can connect higher charges to better oversight and outcomes for savers.
Recent discussions about pension system reforms have highlighted similar tensions between funding needs and fairness.
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