On the go: The Department for Work and Pensions has confirmed that a new general levy structure, with four different rates, will come into force in April 2021.
In its response to the consultation launched in December, the government announced its intention to proceed with option one, which calculates levy payments differently for defined benefit, defined contribution, master trusts and personal pension schemes.
The levy will still be based on the number of members in a scheme, but different rates would account for the increased level of resource needed to regulate and support different sectors.
DB schemes and DC plans that do not qualify as a master trust would face a hike of 10 per cent for 2021, while master trusts and personal pensions would only have to pay an additional 5 per cent.
The general levy is paid by all registered occupational and personal pension schemes, and funds arm’s-length bodies like the Pensions Regulator, as well as the Pensions Ombudsman and the Money and Pensions Service.
A combination of a 12-year freeze in levy rates, reductions in 2012 and for large schemes in 2017, along with widened mandates for the funded bodies, has led to a hole opening up in the DWP’s finances.
However, considering that “schemes are entitled to expect a level of cost control that takes account of developments in the external environment”, which is “particularly challenging currently”, the DWP has decided to freeze the 2021-22 operating budgets of the regulator and the ombudsman at 2020-21 levels.
It has also been decided to reduce by 25 per cent the core element of Maps’ funding for 2021-22 that will be chargeable to the levy.
“The government believes these decisions underscore its commitment to maintain effective cost control alongside delivery of a level of funding that allows the pensions bodies to operate effectively,” the document read.
Kate Smith, head of pensions at Aegon, argued that the new levy structure “is a fairer and more proportionate approach”, better aligned to the need for TPR’s supervisory attention.
She said: “This is particularly the case for DB schemes, which will face the biggest increases, as this is where most of the regulator’s energy is focused, and this is set to increase now that the Pension Schemes Act 2021 is in place, giving the regulator more powers. So it’s only fair that these schemes pay the most.”
