National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Baroness Altmann and Lord Mackinlay of Richborough

Committee stage
Tuesday 24th February 2026 Grand Committee

[Lord Mackinlay of Richborough (Con)]

Perhaps I may make some comments on Amendment 33 put forward by the noble Baroness, Lady Altmann, and my noble friend Lord Leigh. My noble friend recommends that there be some Treasury advice on this. I do not think Treasury advice is good enough. Surely we are in the thicket of drafting legislation. Let us have those rules very open and clear within the legalisation before us.

I am confused about what is intended here. It is intended to be a £2,000 limit for the employee across all employments? At the wind-up of the previous group, the Minister, the Financial Secretary to the Treasury, quite correctly said that there would be excess complication in the system proposed by my noble friend Lady Neville-Rolfe’s amendment because an employer would have to know about their employees’ tax arrangements and whether they had rental income or income from other employments or investments. That was a very reasonable observation by the Minister. However, this legislation is, as it stands, somewhat silent on a similar complication that would exist across multiple employments.

There is an attempt to smooth out monthly variations in the directors’ arrangements for national insurance calculations, because directors are obviously able to adjust their income a bit more fluidly. I am sure that the Minister is aware that if a normal employee has a very big bonus, potentially in one month, the monthly threshold for maximal class 1 deductions for national insurance will be breached for that month and there will be technically an avoidance of national insurance, because the following month, when employment income goes back to a normal level, full national insurance would be taken. For those able to manipulate their income—and I use that advisedly in a broader sense, but directors can have a little more influence on how they are remunerated—there is a procedure within legislation to iron out those peaks and troughs on an annual basis.

Accepting within the tax and national insurance legislation that a normal employee should be able to benefit from a big peak one month and avoid national insurance, is it the intention that across multiple employments that £2,000 per year will be available to each employment? I think that, as the Bill stands, it does, and I welcome that, because it almost matches what happens in other national insurance legislation applying to an employee. However, it will not be good enough simply to have Treasury advice post-legislation. I would rather that that be clarified today so that we can discuss it further and amend as appropriate on Report. However, my thanks, as ever, go to my noble friend Lord Leigh and the noble Baroness, Lady Altmann, for highlighting the point in question, because it is what life is all about. Currently, it is not uncommon for people to have a multitude of employments.

The main things that I want to discuss on this group are the amendments put forward by my noble friend Lord Fuller—Amendments 4A, 4B, 17A and 17B —which all cover aspects of a similar theme. Call me simplistic, or perhaps old-fashioned, but I would prefer there to be similarities in different parts of the tax system. We have accepted in the tax system the three-year carrying forward of unused pension contribution relief within income tax. It used to be £40,000 a year; now, it is £60,000, and it remains unaffected thus far by two Budgets. I do not want to give Chancellor Reeves any ideas for the future but that sum of £60,000 seems to have survived two Budgets, so perhaps we may live in some hope. In income tax regulations, we have a situation where you can carry forward three years of unused relief, so, in year 4, one could—if one had sufficient income and this was a sensible thing to do in the tax regime in which one found oneself for that year—make a contribution of £240,000. The Treasury is very comfortable with that and, so far, there have been no efforts to amend that in the Budgets we have seen.

I go back to our discussion of the basic rate taxpayer, who may have multiple employments, who may be between employments and who may have both good and bad years. It would seem to stand to reason that we should have a similar idea of carrying forward to allow that sum of £2,000, as it currently stands. Obviously, I would rather it were higher; other amendments laid by noble Lords seek to amend it to £5,000 or £10,000, but I am talking just about the £2,000 limit. I know that my noble friend Lord Leigh gave some examples from real life but there may be situations where, for whatever reason, a pension contribution or a salary sacrifice cannot be made because the taxpayer—for example, a student, and potentially a newly employed one at that—simply needs the cash that year and is prepared not to have the tax and national insurance relief.

Again, this would be neither a difficult nor unusual situation. Someone’s child may be getting married, or they may need private healthcare because the NHS is not providing what is needed. Whatever it is, there are a multitude of real-life situations where cash may be king for a year. Following the income tax arrangements, surely it cannot be unacceptable for that small £2,000 limit to go forward for three years in exactly the same way so that the national insurance shield—that is, the benefit of making a contribution—is at least maintained for years when it was not needed.

Drawing on my professional experience, I can be absolutely sure that many of these brought-forward years are never used. They are used on a “first in, first out” basis, so year 1 carries forward to year 4. If it is not needed to be used, that falls out of bed, then you have years 2 and 3; in the fourth year, if any years are unused, you are carried forward to year 5, whereafter year 2 disappears. It is extremely rare for the full carry-forward to be used. The amounts involved in this sensible carry-forward measure proposed by my noble friend Lord Fuller seem very reasonable and not that costly for the Treasury, whose demand in all this has nothing to do with pensions but is about raising cash. I ask the Minister to look at this carefully—not today, obviously, as I am sure he will say no to most everything—on Report, to see whether we can consider this matter more carefully.

Finally, I go back to the amendments in the names of my noble friend Lord Leigh and the noble Baroness, Lady Altmann. If there is an intention behind the multiple employment arrangement, let us please see it in the Bill, not just in guidance from HMRC at a later date.

[Baroness Altmann (Non-Afl)]

My Lords, first, I need to declare my interests as set out in the register as a non-executive director of a pensions administration company and as a board adviser to a pension provider.

I believe that the Bill is premature—the extent of the amendments being proposed to it is evidence that it has been rushed, and I do not quite understand what the rush is, given that the policy is not intended to start until 2029. I must admit that I immediately thought at the Budget, when the measure was announced, that it was simply a means for the Chancellor to find some revenue to make the books balance in the way that she had hoped. That is not necessarily a criticism, I just felt that it seemed to be the reality. Then suddenly, a few weeks, effectively, after that Budget, we get the primary legislation.

I apologise to the Minister because I have enormous respect for him and I know that he has a very difficult task. I think he understands very well a number of the points we are making, but so many of the issues we are covering here do not seem to have been thought through. The list of potential banana skins and uncertainty seems to be growing by the day, and the practical issues simply have not been recognised, let alone resolved, as has already been evident. We will come to more as we go through Committee.

Let us just consider the risks highlighted in some of the amendments. For example, Amendments 4 and 17 from my noble friend Lord Leigh, to which I have added my name, are trying to clarify what is actually caught by the Bill. If an employer increases workers’ pension contributions, will it automatically be assumed that that was in some way a salary sacrifice? The employer may just have decided to increase its contributions for some other reason. How will we know? How will anyone know?

The uncertainties do not stop there. What about Amendment 33, to which I have also added my name? If someone has multiple jobs, how will anyone be able to track the salary sacrifice pension contributions made through a tax year? We will come on to what happens when someone changes jobs.

We saw in the previous group the effect on student loan costs for students. I know the Minister said that can be dealt with elsewhere in regulations because those student loan rules are set in other regulations, but if they are not in the Bill then they will be caught, it seems to me. I did not hear an argument that says they will not be.

Who is responsible for compliance? Who is responsible for reporting to HMRC? Again, we have heard about the problem with privacy. They are just the uncertainties that we are trying to sort out with some of these amendments.

Then we have the unknowns, which seem to be skirted over. We certainly know that take-home pay will fall for a number of workers who currently get salary sacrifice, either by the 2% or the 8% of the national insurance contribution offset they will potentially lose. Employer costs will rise.

I have huge respect for the noble Lord, Lord Davies, and all the calculations he does, and I recognise that, in some ways, the amounts of money, as he correctly calculated, perhaps seem rather small to us. However, as an economist, I know that decisions, incentives and behavioural changes occur at the margin. It is marginal changes, however small, that can make a significant overall impact over time. If employer costs are rising because they are paying extra national insurance on the pension contributions that they have always been making, it is bound to affect future pay rises and employment levels. We have no modelling of how much that impact might be.