The UK pensions industry has called for a full review of the general levy framework, warning that, as proposed, the general levy reforms risk undermining consolidation efforts and negatively impacting member outcomes.
UK government launched a consultation on proposals to reform the general levy in July 2026 after a review identified a structural funding gap.
The general levy recovers the funding provided by the Department for Work & Pensions (DWP) to the Pensions Regulator (TPR), the Pensions Ombudsman and some pensions-related functions of the Money and Pensions Service (MaPS).
In the foreword to the consultation, pensions minister Torsten Bell said the levy income has not kept pace with the cost of regulation, oversight and protection of the UK’s private pensions market, leading to persistent annual deficits and a growing levy debt.
He also warned that consolidation and reforms under the Pension Schemes Act 2026 are increasing both the scale and complexity of what the system needs to deliver.
To address the current levy deficit, the DWP proposed to revise the amounts payable by different scheme types to reflect the concentration of regulatory effort. Under the proposals, for the three-year period from 2027 to 2030, schemes would see an increase of between 5% and 9% per year, depending on scheme type, with the larger increases applying to master trusts and personal pension schemes.
Under proposed levy rates, pension funds with 500,000 plus members will see their levy rate increase to £0.94 in 2027/2028 with a minimum payment of £620,790, £1.02 in 2028/29 with a minimum payment of £676,100 and £1.11 in 2029/30 with a minimum payment of £736,340.
The total general levy income has already increased from £43.5m in 2018/19 to £98.4m in 2025/26 – a rise of 126%.
While recognising the need to address the general levy deficit and ensure the long-term sustainability of levy-funded bodies, Pensions UK warned the current framework has not kept pace with major changes in the pensions market and would impose significant additional costs on pension schemes and providers.
Higher levy costs could affect member outcomes, business planning and the delivery of wider government policy objectives around consolidation, scale and value for money, the association warned.
The proposals also have implications for the future Value for Money (VfM) assessments. According to Pensions UK, increased levy costs could adversely affect scheme cost metrics despite not reflecting inefficiency or poor governance on the part of pension funds.
In addition, Pensions UK stated that with bigger schemes facing higher rate increases, the proposals could also weaken incentives for consolidation and scale.
Therefore, Pensions UK urged that significant changes to the distribution of levy costs should not be made before a comprehensive review of the levy framework has been undertaken. This includes a structural review to consider what the levy funds, how costs are allocated across different types of pension fund and activity, and whether the current approach remains fair, transparent and sustainable in a market that has changed significantly since the levy was introduced.
The association said the review should examine the principles underpinning future cost allocation, provide greater transparency over expenditure and outcomes, and assess how the levy should operate in a more consolidated pensions landscape.
Julian Mund, chief executive of Pensions UK, said: “The general levy funds important parts of the pensions system, and pension schemes should contribute to the cost of effective regulation, guidance and dispute resolution. But the way those costs are raised must be fair, transparent and proportionate.
“The government should now commit to a full review of the levy framework, with clear principles for how costs are allocated in future. In the meantime, a cap on individual levy liabilities would be a pragmatic way to manage the most significant impacts while still allowing progress to be made on reducing the deficit.”
People’s Partnership has also called for a rethink of the general levy. Tim Gosling, head of policy at People’s Partnership, said: “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.”
Currently, NEST and People’s Pension are the biggest master trusts in the UK, with 13.7 million and 7 million members, respectively. This is followed by NOW: Pensions with 2.6 million members, Legal & General master trust with 2.19 million members and Smart Pension with 2 million members.
By contrast, Gosling flagged that the Financial Conduct Authority levy for pension providers is linked to the cost of regulation and is charged on an organisation’s gross income rather than per member.
He said: “That shows that there are other ways of funding the work the general levy supports while bringing greater transparency to the process. The DWP should review the levy as soon as possible and should cap the levy bills of large schemes paying far more than they cost to regulate.”
