The UK’s Department for Work and Pensions (DWP) has launched a consultation seeking views on proposed changes to the structure and rates of the general levy on occupational and personal pension schemes.
The consultation raises awareness of the ongoing deficit in levy funding and sets out options for mitigating this over the next three tax years from 2024 to 2025 through 2026 to 2027.
It seeks the industry’s views on the three options previously agreed by ministers.
The first option looks at continuing with the current levy rates and levy structure. It would see rates freeze at this year’s rates until tax year 2026 to 2027 and retain the four categories of rate payer:
- defined benefit (DB) schemes;
- defined contribution (DC) schemes other than mastertrusts;
- mastertrusts; and
- personal pensions schemes.
This, the government said, would see the levy deficit continue to grow, requiring greater rises at later date.
Option two explores whether the government should retain the current levy structure and increase rates by 6.5% per year. This option would bring the cumulative deficit back into a compliant level by 2031.
Finally, the government is also seeking views whether the rates should be increased by 4% per year across all schemes. This option would add a premium to schemes which as of April 2026 have membership under 10,000.
This premium will allow for a lower initial increase across all schemes, while still paying off the deficit, and supporting the consolidation of smaller schemes.
The government estimates that if levy rates were to remain unchanged, there would be a deficit over £200m by 2031, whereas options two and three aim to bring levy income into balance with levy expenditure over the medium term, currently forecasted by 2025 and to recover the accumulated deficit by 2030.
It said that the options differ in the proportion of revenue collected from each scheme size, with option three collecting more from small schemes that choose not to consolidate.
It said: “The government is interested in understanding more about how pension schemes may absorb these costs or whether they may choose to pass on these costs to members of their scheme or to employers who enrol their employees into the scheme.”
The government said it will aim to introduce changes to the levy from 2024/25 to 2026/27 following the consultation exercise, which will run until 13 November 2023.
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