The Department for Work and Pensions (DWP) has proposed increasing the general levy on occupational and personal pension schemes from 1 April 2020.
In a consultation published on 18 October, the DWP said the proposed rise comes as the levy’s cumulative surplus had, by the end of 2018, reduced to just over £2m from £24m in 2013. By the end of 2019, the government said it expects a £16m deficit, which is estimated to surge to over £50m by 2020.
It said this is linked to increased costs associated with levy-funded pension bodies – The Pensions Regulator (TPR), The Pensions Ombudsman (TPO) and the Money and Pensions Service (MAPS) – which have seen “continuing change and growth”.
Costs relating to the MAPS-led pensions dashboard, and the architecture elements that will enable dashboards to work, are particularly noted. The levy is also linked to activities carried out by TPR and TPO, and to support government objectives, pension schemes, and savers.
The levy rates – which are calculated depending on the number of members in a pension scheme – were last increased in 2008/09, but were then reduced by 13% in 2012/2013 and have remained at the same level for most pension schemes since then. A new, lower, levy rate for schemes with 500,000 members or more was introduced in 2017/2018.
The consultation document said: “A natural consequence of increased activity is additional pressure on levy expenditure.
“Without an increase in the levy rates or a significant reduction in the activity of the levy-funded bodies, the amount by which the expected revenue from the levy falls short of forecast expenditure is likely to continue to grow significantly.”
The government has also proposed alternative options, including : a holding increase of 10% of 2019/20 rates on 1 April 2020, and further increases from April 2021 informed by a wider review of the levy; a phased levy over the three years commencing April 2020, or a phased increase in the levy over around ten years, commencing April 2020.
The consultation closes on 15 November.