I told myself I shouldn’t write about this but of course I didn’t because I wasn’t brave enough. I don’t fully understand how these levies get calculated and decided to keep mmm.. until I do.
I was amazed and delighted that Tom McPhail put on Linked in what I had failed to do. Of course the good will out and Tom speaks much better on this than I can.
“I’ve written a piece for the Telegraph about the hidden and escalating cost of regulation, prompted by the DWP’s recent consultation on raising scheme levies by up to 9%. Every £1 of regulatory costs should be fought over. Why do we still have the FCA and TPR both regulating DC pension schemes? As a country we are living beyond our means, spending too much, borrowing too much, taxing too much, meanwhile growth and productivity have stagnated for 20 years. Part of the reason for this is we’re far too lax about spending money on things we don’t need to..”
That was the introduction. If more like this was in the article, I was going to track it down!
Here is the article’s link posted by Tom for those who read the Telegraph.
Of course I don’t read the Telegraph but I wasn’t giving up on accessing this article. I found a tweet from Tom and the stone rolled from the entrance it was blocking when I tried opening the article on my phone!
The hidden tax on your pension https://t.co/8TOcKpuGGw
— Tom McPhail (@PensionsMonkey) July 24, 2026
You can try reading it on your phone (like I did) or you can let me offer it you on this blog without you having the trouble!
The hidden tax on your pension
Levies are quietly eating into savings – and they’re just one cog in our costly regulatory machine
When Rachel Reeves promised not to raise income tax, VAT, or National Insurance, we knew where we stood. These tax rates are published, and the Government is accountable to the electorate for them.
However, Reeves broke her promise on National Insurance, and she is no longer chancellor. In a just world these facts would not be entirely unconnected.
But in addition to these and other explicit taxes with known rates, thresholds and exemptions, the Government operates a system of “shadow” taxes that help fund public services but for which there is no explicit democratic mandate. These additional taxes go some way towards explaining why our productivity and economic growth performance has been so poor for the past 20 years.
Last week the Department for Work and Pensions (DWP) issued a consultation on increasing the regulatory levies that pension schemes will be required to pay during the next few years. The cost of these levies is met out of our retirement pots. They’re only the tip of the iceberg.
These are part of a complex web of product charges and levies that pay for the UK’s financial regulation.
The DWP’s justification for increasing the pension scheme levies by up to 9pc a year is that it has just introduced a raft of new regulations that schemes will have to comply with.
Of course, policing compliance with these new regulations will cost extra, too, so the members pay again.
There’s good and there’s bad regulation
I’m not suggesting we don’t need regulation. All but the most ardent free-marketeers would accept that some markets need some regulation at least some of the time. The world I inhabit, of pensions and financial services, is a prime example. Left to their own devices and with access to other people’s money, some people will act dishonestly, so we need checks and controls.
The difficult reality is that while good regulation costs money, bad regulation often costs more money, and we are paying far too much for our financial regulation.
It can’t be said often enough that we need the Government to tax less and to spend a lot less. We also need the economy to grow faster.
Between them, the Financial Conduct Authority (FCA), the Pensions Regulator (TPR), the Prudential Regulatory Authority and the Money and Pensions Service cost about £1.5bn a year to run.
We have a ludicrous situation wherein the Venn diagram of the regulatory duties of the FCA and TPR is nearing a circle.
Yet rather than acknowledge that, for reasons of market convergence, we have ended up with regulatory duplication and overlap, they doggedly persist with the status quo because to do otherwise would cost some of them their jobs.
In addition to the direct cost of paying for all this regulation, we’re paying several times over in indirect costs.
Regulators love introducing reporting obligations. They have them for a whole raft of corporate functions, and they invent new ones every year. Generally, they’re additive, so instead of scrapping regulations and replacing them with something simpler, they just introduce more, and more, and more.
Firms end up spending a fortune preparing reports that no one ever reads, employing highly skilled compliance consultants to avoid falling foul of the regulations. All this has to be paid for by the customer, and it does nothing to grow the economy.
The sprawling quango network
In addition to the direct cost of paying for all this regulation, we’re paying several times over in indirect costs.
Regulators love introducing reporting obligations. They have them for a whole raft of corporate functions, and they invent new ones every year. Generally, they’re additive, so instead of scrapping regulations and replacing them with something simpler, they just introduce more, and more, and more.
Firms end up spending a fortune preparing reports that no one ever reads, employing highly skilled compliance consultants to avoid falling foul of the regulations. All this has to be paid for by the customer, and it does nothing to grow the economy.
However, at present the terms of the reviews and the way they are steered by the civil servants are designed to protect the organisations from change. This can’t go on.
We need a complete shift in mindset, a culture not of “how can we find the money to meet our spending needs” but instead one of “what’s the minimum price at which we can deliver our statutory objectives”?
I can talk to you about financial services levies, but they exist across the economy, from aggregates to sea fish, from carbon emissions to agriculture.
The Government needs to conduct an existential audit on every single arm’s-length body on the payroll.
What are the essential functions of this organisation?
Does it perform any non-essential activities?
Can any of its functions be merged with another body?
How much could we save by trimming its operations?
And, crucially, how much would businesses save by not having so much regulation to comply with?
Until we do this, we shouldn’t be surprised at the UK’s ongoing economic stagnation.
