The government has faced industry criticism after confirming plans for a "moderate increase" to the general levy, in its response to a Department for Work and Pensions (DWP) consultation.

Following a six week consultation, the government has confirmed a holding increase of 10 per cent of 2019 to 2020 rates on 1 April 2020, with further increases from April 2021 to be informed by a wider review of the levy.

It has also confirmed plans to increase the rate for band one schemes (schemes with 2-11 members) to £75 per annum for occupational schemes, and £30 per annum for personal pension schemes.

The general levy is used to recover funding provided by the DWP, The Pensions Regulator (TPR), The Pensions Ombudsman (TPO), and the Money and Pensions Service (Maps), with the amount levied dependent on the number of members within the individual scheme.

The levy was in a surplus by £2m in 2018, however, increases in annual expenditure means that the fund now has a cumulative deficit of over £16m in 2019, which is estimated to reach over £50m by 2020, according to DWP.

Whilst government plans for a review have been broadly welcomed, the broader proposals have been criticised by industry experts, who labelled the announcement “disappointing” and “unwelcome”.

Now Pensions director of policy, Adrian Boulding, commented: "Today’s disappointing levy announcement, which sees pension schemes paying a levy many times over in respect of deferred members, demonstrates once again why government must take urgent action to support the industry get to grips with the growing number of deferred members.”

Concerns over the impact of the general levy on master trusts were also made throughout the consultation process, with analysis by The People’s Pension revealing that master trusts would be liable for 25 per cent of the general levy in future, despite holding just two per cent of assets.

Smart Pension director of policy and communications, Darren Philp, added: "While we understand the need for the government to balance the books, the outcome of the consultation on the levy is unfortunate and unwelcome.

"To fill a black hole of its own creation, the DWP is hitting hardest those providers that are in the vanguard of delivering auto-enrolment and this levy increase has a disproportionate impact on those providers serving low to moderate earners.

"The promised DWP review of the levy needs to look fundamentally at the costs of regulation and where those costs fall. Auto-enrolment schemes should not be seen as a cash cow paying for increased regulatory costs.

"We need proper scrutiny of regulatory expenditure and a revised levy formula that is fairer across the industry."

Whilst calls to freeze the levy until a “full and thorough” review was undertaken were also made by the Pensions and Lifetime Savings Association (PLSA) throughout the consultation, the governments response clarified that this would delay corrections to the existing deficit.

It stated: “The requirement to bear down on the levy deficit is pressing and to delay the start of corrective action until 2021 would not be appropriate”.

Commenting on the plans, PLSA policy lead for master trusts, Craig Rimmer, added: “The PLSA is deeply disappointed the government has decided to apply, at short notice, a 10 per cent increase to the general levy pensions schemes pay to fund the sector’s arms-length supervisory bodies.

“However, we are pleased the DWP has listened to the industry and decided to conduct a full structural review, which should result in a more efficient and more transparent application of the levy.

“It is vital that DWP determines the principles of any new levy structure as a first step and the PLSA looks forward to gathering the expert views of the industry to inform the review.”

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