Many providers were concerned that the Small Self Administered Scheme sector would have been decimated by a levy which all schemes, no matter their size, would have been forced to pay.

However the DWP announced yesterday that, after consultation, it would drop the £10,000 levy plan and instead impose a 6.5% increase in fees across the board.

Response to a review were overwhelmingly agains the £10,000 levy proposal.

The DWP launched its consultation after highlighting that it faces a major funding shortfall in supervising smaller pension schemes.

Andrew Phipps, chair of SIPP and SSAS provider trade body AMPS (the Association of Member-Directed Pension Schemes), said the DWP response was “fantastic” and reflected overwhelmingly negative views about the proposed levy.

He said yesterday: “The Government response to their consultation on the General Levy has been published today. It is great to see that a proportionate approach has been taken and the £10,000 premium many feared would be levied against small schemes has been avoided. A fantastic response from the industry with 287 responses, clearly having the desired effect, and thanks to the DWP for listening.”

Peter Collier, director of marketing and distribution at SSAS provider, WBR Group, said the levy could have been “crippling.”

He said: “The Government has published its response to the General Levy consultation and the sector breathes a collective sigh of relief, as common sense did prevail and SSASs will not be impacted by the proposed £10,000 premium.

“The consultation document was met with some spectacular hyperbole regarding the future of SSASs and I am very pleased that in the much-misquoted words of Mark Twain, reports of the death of SSAS have been greatly exaggerated. While SSASs sit within the targeted pension group, they exhibit several characteristics which should set them apart for the purposes of the DWP and The Pension Regulator proposals.

“I am sure that much thanks goes to the Association of Member-Directed Pension Schemes (AMPS), not only did they respond on behalf of their membership, but also mobilised them to respond individually to the consultation. It clearly worked and SSASs will not be impacted by the £10,000 premium. It is just a shame that there has been 6 months of damage done to the SSAS sector and to small businesses especially in the run up to the end of the tax year when advisers and directors are looking at their retirement planning.”

It's believed that many new SSAS creations have been put on pause recently while the regulations were reviewed by the DWP.

Martin Tilley, SSAS expert and columnist for Financial Planning sister publication SIPPs Professional, said he was pleased with the news but thought it unlikely the DWP would have pressed ahead with the levy (Option 3).

Mr Tilley, who also works for WBR Group, said: “In terms of the levy, I stand by my comment that I don’t think Option 3 was ever intended to apply to SSASs. The DWP’s response to its responses sets out that it was never intended to penalise SSASs and they can also point to their consultation document which mentions “small schemes” but not “relevant small schemes”. SSASs are the latter. 

“So is it right to herald a victory over something that was never a battle as it was not intended in the first place? Was it just poor drafting of the consultation by DWP? Either way, the way the SSAS community pulled together was encouraging and the numbers of responses to the consultation clearly shows that there is a strong demand to retain the SSAS proposition, which continues to deliver unique opportunities to Financial Planners, tax consultancies and their clients. 

“Is the 6.5% levy increase a fair deal? Well the funding has to come from somewhere and there are increasing demands for the services the levy contributes towards - so I’d suggest it’s not unreasonable.”

Pensions experts James Jones-Tinsley of Barnett Waddingham, who is also a columnist for SIPPs Professional, said the news was positive.

He said: “I am both delighted and relieved that the DWP will not be applying the £10,000 premium on schemes with less than 10,000 members, and that they specifically stated within their Consultation Response that, “…the aim of the £10,000 premium was not to penalise SSASs…”.

“Yes, a 6.5% increase in levy payments is above the prevailing rate of inflation, but it is far more equitable to apply a percentage increase to the size of the scheme in question than hit every scheme with the same arbitrary monetary amount, regardless of its size.”

Lisa Webster, senior technical consultant at AJ Bell, and also a SIPPs Professional columnist, said: "Dropping the £10,000 levy is a victory for common sense. The fact that out of 287 responses only 3 preferred this option speaks volumes. However, much of the additional costs of new regulation relate to workplace pensions, and it is master trusts that have been the main beneficiary of increased membership due to automatic enrolment.

"It therefore feels a little unfair that the 6.5% increase is applied equally to personal pensions that will benefit least. We would rather have seen a more proportionate increase in the levy, so those schemes that benefit most pay more."

Financial Planning Today Analysis: There will be much relief among SSAS providers that the DWP has dropped the levy which could have undermined SSAS schemes. Intensive lobbying by trade body AMPS and by leading providers has done the trick. The replacement 6.5% across the board levy, in contrast, seems a relatively modest price to pay. The longer term issue, however, is paying for the rising cost of pensions regulation. There is no doubt the DWP wants to see providers paying more as costs ramp up. We may not have heard the last of higher pension fees for providers.