National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Baroness Altmann and Baroness Kramer

Committee stage
Tuesday 24th February 2026 Grand Committee

[Baroness Altmann (Non-Afl)]

I will speak in support of my Amendment 9, as well as the amendments to which I have added my name, Amendments 7 and 20.

I have proposed my amendment so that—if we are to go through this exercise, which I hope we will not—no basic rate taxpayers would be likely to be caught by the measure. If the minimum contribution on which they can have national insurance relief is £10,000 a year, they are unlikely to be caught, unless they get a very large bonus. I hope that we will be able to deal with some of these issues.

The reason for suggesting a £10,000 per year pension contribution is based on the minimum amount that the very top earners are able to contribute to pensions. Under the tapered annual allowance, for example, £10,000 seems considered to be, if you like, an acceptable level of pension that is not egregious in some way.

My preference would be that, if we are to go down the route of capping the national insurance reliefs available to anyone who is paying into a pension, we do that in the way that I have just suggested, which is the same as one does with tax relief. If you pay in more than £60,000 a year, you do not get any extra tax relief; but if you pay in, for example, more than £10,000 a year, you do not get any national insurance relief on the amounts on top of that. That would be so much simpler.

I stress to the Committee that I believe that the Government and the Minister have not realised the complexity—the sheer scale of the administrative tasks—that will be involved if the Bill proceeds as it is. I liked the idea suggested by my noble friend Lord Leigh to put this on hold and do the work that we are trying to get the Government to do straight after the Bill passes before we finish and finalise the legislation, so that we have a better idea of what we are doing.

I also have a lot of sympathy with the approach that the noble Lord, Lord de Clifford, has outlined. We all seem to be trying to make the Bill operate in practice in a rather less difficult, complicated and costly administrative manner. The amendments tabled by the noble Baroness, Lady Kramer, to which I added my name, on £5,000 are just another way of trying to square this circle. I look forward to hearing the Minister’s thoughts.

I must confess that the idea of inflation linking this limit, if we were to get it, each year would probably just add to the complexity of an already incredibly complex set of changes that we are thinking of making to the Bill. We would not know, from one year to the next, what the new limit will be, because it will not be £2,000 or £10,000—I hope we will not end up there. I hope the Minister understands the spirit in which I am trying to suggest the £10,000 figure and the people I am trying to help: the basic rate taxpayers. I really do fear that they will have a much worse pension outcome if this goes ahead.

[Baroness Kramer (LD)]

My Lords, this is the group of amendments on which I have been the most focused. I will not repeat my Second Reading speech, in which I talked about the importance of growing pension savings to fuel the growth agenda, but the Government must realise that this policy just does not align with that. However, I hope that the Government are beginning to understand that life today is long and it is not easy to put aside enough from the working years to achieve a decent retirement without depending on the state. According to the Resolution Foundation, changes made under the Bill will hit at least half of those who use salary sacrifice, affecting a large number and a wide range of households.

Different noble Lords, as we see in the amendments here, have proposed different increases to the contributions limit. Amendments 7, 10, 11, 20, 22 and 23 are in my name, and I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord Londesborough, for signing some of them. The core of my amendments would increase the contributions limit from £2,000 to £5,000, preferably with a further annual increase linked to RPI. I confess that there is not a lot of science behind my choice of £5,000, but running it past people who deal with pensions, I began to think I had hit a sweet spot with that figure. The response was that it would support people making the rather difficult choice of what to do with their money and provide a little more of an incentive to save in a pension rather than to spend.

As part of this process, my colleagues in the other place were able to obtain some research from the Commons Library, using PolicyEngine and its interactive dashboard. That work is not definitive but it provides a useful picture of the distributional effects of raising the contribution limit. An uplift of £5,000 would give the greatest gains to the two top income deciles—we would all expect that. But just a shave behind those two deciles, the next highest gainers are the second decile, which is not, I expect, the result that the Government would have predicted. This group would have within it a cohort of young people, probably in their early to mid-20s, perhaps one pay rise into their careers, still willing to live in shared accommodation and to live quite frugally, and not yet trying to pay off student loans, get a mortgage or support children. Surely this is the group that any Government should target to get into saving for a pension in a big way.

Early investment enables a pension pot to grow, but it is a narrow window. As people move into the age of families and mortgages, they cut or even stop pension savings, and women are even more affected if they reduce work to care for children. Only later in life do people return to significant savings and by then it is very late in the day. Frankly, we should make sure that they also have strong incentives to save at this point in their lives to avoid sharp drops in living standards in old age. I think the Government have looked at earners as if they belong to fixed blocks: low earners, middle earners and high earners. In reality, most people’s profiles as earners and savers change as they go through life, and the incentives therefore have to be shaped to maximise and to meet that profile.

Some of my amendments would increase the £5,000 contribution limit annually by RPI. The noble Baroness, Lady Neville-Rolfe, discussed increasing the £2,000 limit by CPI. I know that the noble Baroness, Lady Altmann, considers this an additional complication but, frankly, we have to tackle this issue of frozen thresholds, which in eras of inflation have just such a negative impact.