Smaller pension schemes will receive “unfair treatment” under the government’s proposals to increase the general levy on occupational and personal pension schemes, Broadstone has warned.

The independent consultancy warned that the favoured proposal outlined in the consultation would put create a “disproportionate small scheme premium”.

The consultation is seeking industry views on three options to mitigate the levy funding deficit over the next three tax years, covering levy rates for the years 2024/25, 2025/26 and 2026/27.

The options were previously agreed by ministers after estimates from the DWP revealed that, if levy rates were to remain unchanged, there would be a deficit of over £200m by 2031.

The government proposed an increase to the annual levy rate by 4 per cent a year and the introduction of a £10,000 premium for schemes with less than 10,000 members in April 2026.

Broadstone said that the proposal demonstrated a lack of understanding for the challenges facing smaller defined benefit (DB) schemes.

In the defined contribution (DC) pension space, Broadstone noted that while the policy push to consolidation was more entrenched, it could be better targeted and members were likely to suffer.

Broadstone chief actuary, David Hamilton, said the proposals were indiscriminate and disproportionate financial punishment for smaller arrangements, with no clear escape for DB schemes.

“The DWP's preferred direction of travel seems to set a punitive premium trap and once again small schemes look set to be hammered disproportionately by regulatory changes,” Hamilton continued.

“The proposals are evidently aiming to drive consolidation at the smaller end of the DC market, but they are poorly targeted and the figures simply do not add up.

“It is unclear from the consultation if this is intended as just a one-off fee, but if so, it suggests there is no viable long-term plan beyond 2026/7 for the sensible management of regulatory costs.

“If not, then the figures quoted are completely disproportionate, and the suggestion that this could incentivise half of all small schemes to consolidate within three years seems ambitious at best.

“In the DB market there is no obvious way out for smaller schemes within these timescales. There is already a struggle to achieve competitive buyout pricing as insurers understandably focus on larger, more profitable opportunities, and whilst consolidators might provide a longer-term solution, Clara are yet to take on one scheme, let alone hundreds or thousands.”

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