The Department for Work and Pensions (DWP) is consulting on reforms to the general levy for occupational and personal pension schemes, including increasing rates over a three-year period from April 2027.

Levy debt reached £154m in March 2026 and is expected to continue rising without action, with the DWP warning the current 6.5 per cent annual increase would not be enough to reduce the debt.

Eliminating the levy debt by 2030/31, as previously planned, would require “substantial” increases in levy rates over a relatively short period of time, which the DWP said would place significant pressure on schemes and sponsors.

The consultation therefore proposed extending the recovery period to allow for a more gradual increase in levy rates, aiming to reach a surplus of around £3.3m by 2033/34.

To achieve this, the DWP proposed applying an increase of 5 per cent per year over a three-year period from 2027/28 for defined benefit (DB) schemes, an increase of 6.2 per cent a year for defined contribution (DC) schemes (excluding master trusts), and an increase of 9 per cent annually for master trusts and personal pension schemes.

This approach aims to support the long-term financial sustainability of the levy while aligning the rates paid by DC schemes, master trusts, and personal pension schemes with those paid by DB and hybrid schemes.

The levy recovers funding provided by the DWP for The Pensions Ombudsman, the core regulatory activities of The Pensions Regulator, and the pensions-related functions (excluding Pension Wise) of the Money and Pensions Service.

The consultation closes on 8 September 2026, after which the government plans to publish its response and lay secondary legislation in early 2027 to change levy rates from April 2027.

“Our 2026 review of the levy has identified a structural funding gap,” commented Pensions Minister, Torsten Bell.

“Levy income has not kept pace with the cost of these functions, leading to persistent annual deficits and a growing levy debt.

“At the same time, the pensions landscape is changing quickly. Consolidation, the continued shift to DC provision, and reforms under the Pension Schemes Act 2026 are increasing both the scale and complexity of what the system needs to deliver.

“The government’s proposed approach to addressing the funding gap reflects real trade-offs between how quickly to address levy debt, how costs are distributed across the sector, and the impacts on schemes and employers.”

Pensions UK executive director of policy and advocacy, Zoe Alexander, highlighted that the structural review of the levy promised by the government was yet to be delivered.

"We continue to believe that any further increases should be considered as part of that wider review,” she continued.

"The levy should be fair, transparent and aligned with government policy for the pensions market.

“That means avoiding disproportionate costs falling on any one group of schemes and providing a clear rationale for how levy funding is used and why additional revenue is needed.

"We are also concerned about the impact on master trusts. As we highlighted in our response to the previous consultation, master trusts already bear a disproportionate share of cross-subsidy under the current approach.

“Given the scale of the increases proposed, it is important that this issue is fully considered as part of any wider review."

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