Industry demands fundamental rethink of General Levy framework
The government’s proposed increases to the General Levy for occupational and personal pension schemes are facing pushback from industry groups, who warn the changes could distort value for money assessments and undermine consolidation efforts. In a response to the Department for Work and Pensions’ (DWP) consultation, Pensions UK acknowledged the need to address the levy deficit but stressed that the current per-member charging model could unfairly burden large DC schemes with smaller pots.
The group highlighted concerns about the levy’s structure, noting that two schemes account for a significant portion of the levy. In a statement, Julian Mund, chief executive of Pensions UK, emphasized that the levy framework had not kept pace with the market’s evolution—particularly the rise of defined contribution (DC) schemes, master trusts, and automatic enrolment—and called for a full structural review before any further hikes.
Mund stated: “The pensions market has changed significantly, particularly with the growth of defined contribution saving, master trusts, automatic enrolment and consolidation. Yet the General Levy framework has not been subject to the full structural review industry has been calling for.”
The levy, which funds The Pensions Regulator (TPR), the Money and Pensions Service (Maps), and the Pensions Ombudsman, is set to rise under the Occupational and Personal Pension Schemes General Levy Regulations Review 2026. Pensions UK warned that higher costs could feed through into future value for money (VFM) assessments by worsening scheme cost metrics, even though the additional fees do not reflect inefficiency or poor governance.
The group also cautioned that the current structure could create unintended distortions in VFM frameworks, particularly for mass-market master trusts serving thousands of members with modest savings. Without adjustments, these schemes may struggle to demonstrate cost-effectiveness despite delivering strong outcomes for savers. This risk is particularly acute for mass-market master trusts, which serve thousands of members with modest savings.
The current structure could create unintended distortions in VFM frameworks, making it harder for schemes to demonstrate cost-effectiveness. Meanwhile, the government’s push for consolidation—fewer, larger schemes—could be undermined if levy increases discourage mergers or scale-ups. Pensions UK noted that the proposals could weaken incentives for consolidation at a time when the government is actively encouraging the market to move toward larger, more efficient schemes.
Julian Mund, chief executive of Pensions UK, said the market has evolved significantly since the levy was last reviewed. Mund added that without greater transparency and a clear evidence base, further increases to the General Levy could place disproportionate costs on some schemes and savers, distort value for money assessments, and conflict with the government’s own objectives on consolidation and better retirement outcomes. To mitigate risks, Pensions UK recommended a cap on individual levy liabilities from 2027 as an interim measure while the government conducts a broader review. The group also called for greater transparency in how levy income is spent and whether the current allocation between scheme types remains fair.
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Without these changes, Mund warned, further increases could disproportionately affect savers and conflict with the government’s own policy goals. The organization emphasized the need for a review of what the levy funds, how costs are allocated between different scheme types, and whether the current system remains fair, transparent, and sustainable. The Investing and Saving Alliance (TISA) echoed these concerns, demanding stronger evidence to justify proposed hikes for master trusts and personal pension schemes. Renny Biggins, TISA’s head of policy, argued that different schemes place varying demands on regulators, meaning levy increases should be proportionate.
Biggins stated: “Different pension schemes place different demands on regulators, so different levies can be justified. But significant increases need clear evidence behind them, particularly for master trusts and personal pensions, to maintain industry confidence that what they are paying is proportionate.” He added that the tight timeline, with revised rates set to take effect in April 2027—could leave firms scrambling to adjust budgets and business plans.
Biggins also warned that uncertainty over the final framework could force schemes to make rushed financial adjustments, potentially diverting resources from innovation in services or products aimed at improving saver outcomes. TISA also highlighted the risk that higher levy costs could divert resources from innovation, such as improved services or products aimed at better saver outcomes. The group called for transitional arrangements or phased implementation where increases were most significant, alongside greater transparency in how levy funds are allocated and the outcomes they deliver.
Looking ahead, TISA stressed the need for a framework adaptable to future consolidation and potential convergence between workplace and retail pensions post-2030, noting that the current system may not adequately account for evolving regulatory demands in a more integrated pensions environment. A rethink of the levy structure was also urged by People’s Partnership, whose head of policy, Tim Gosling, described the current system as “long overdue.” Gosling stated: “The structure of the levy means that two schemes are now paying just under a fifth of the levy, which is totally disconnected from the cost of regulation.” He pointed to the Financial Conduct Authority (FCA) levy as an alternative approach, noting that it is linked to regulatory costs.
Gosling argued that the DWP should prioritize a review of the levy as soon as possible and implement caps on levy bills for large schemes that are paying significantly more than their proportional share of regulatory costs. The proposals come as the DWP seeks to ensure the long-term sustainability of the bodies funded by the levy.
However, industry groups argue that without a fundamental review, the increases could create unintended consequences, higher costs for savers, distorted VFM assessments, and reduced incentives for consolidation. The calls for a structural overhaul reflect broader concerns about fairness, transparency, and the evolving nature of pension schemes in the UK, including the need for a system that can adapt to future market shifts and regulatory demands.
