National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Baroness Altmann and Lord de Clifford

Committee stage
Tuesday 24th February 2026 Grand Committee

[Lord de Clifford (CB)]

My Lords, my Amendments 8 and 21 seek to simplify the changes to salary sacrifice and link it to NIC, which is a tax that will be applied to the pension contributions. I note my interest in the register as an employer who currently runs a salary sacrifice scheme for our auto-enrol pension scheme.

In my Second Reading speech, I talked about the attack on the middle-income employees, and this amendment seeks to make a small adjustment to those middle-income earners. I support other amendments in this group in principle, especially those trying to increase the limit. I would welcome a higher limit than the one I am proposing, but this is a practical change and will help many. I tried to create equality by increasing the NIC free limit for all employees up to a proposed limit of £50,000 to £170,000. This NIC threshold would allow them just to pay 2% on salary sacrifice pension contributions. The noble Baroness, Lady Neville-Rolfe, and my noble friend Lord Londesborough mentioned this inequity in their speeches at Second Reading, and it has also been mentioned a lot this afternoon.

As the Bill currently stands, anyone who has a salary of £40,000 or above and who is making salary sacrifice contributions of 5%, which is the auto-enrolment employee contribution, would start paying national insurance at 8% up to the national upper earnings limit—of which the current annual threshold is £50,270. At this amount, employees would then only be charged at 2% for further pension contributions. This amendment seeks to increase the limit to that figure of £50,270, thereby removing inequity for some employees paying 8% on their pension contributions and others paying only 2%—the majority being higher earners.

Another benefit of the Government linking it to the NIC threshold is that when they wish to make changes to the threshold—to freeze them or increase them, subject to fiscal requirements of the economy—it would automatically change the NIC-free contribution within salary sacrifice, meaning they do not have to make any specific changes to the limit. It would also allow the NIC non-contribution to automatically increase with some sort of link to inflation and wage growth.

It could also help with the implementation of these changes as it would simplify some of the changes for software developers, with all national insurance already set up in the programme. As we covered in the last group, the Government could treat salary sacrifice in the way NIC deductions are currently calculated—on either a weekly or monthly basis. This, however, does not cover someone with several jobs and how it will be applied to them. I look forward to the Government’s research, and possibly some clarity before Report.

A further small benefit is that it would make it easier for employees to try to calculate their take-home pay and what pension payments they can make on a monthly basis to help plan for the future. The amount this amendment would save for employees paying NIC is a maximum of about £41 a year—as the noble Lord, Lord Davies, has covered—but these small amounts, if put into savings, would grow to a large amount by retirement age. Also, small amounts will make the running of a family home better.

Employers will still pay the bulk of the NIC to be collected, with this being 15% on these types of pension contributions. The maximum charge for employers will be about £77 a year, so not of significance with regards to what is trying to be raised by this change. The Government set out that this change was to focus on higher taxpayers, and this amendment would ensure most basic taxpayers would not have to pay NIC on their salary contributions. It would also solve one of the issues mentioned in Amendment 1 tabled by the noble Baroness, Lady Neville-Rolfe.

Will the Minister say where the £2,000 NIC-free amount come from? We know it was based on independent research commission by His Majesty’s Revenue and Customs. We know that three hypothetical options were offered to employers for feedback and that the response was that, of the three options, £2,000 would have minimal impact on business. How did the researchers produce this £2,000 figure as it appears to be an arbitrary amount?

This practical amendment does not change the principle of the Bill or what the Government are trying to achieve. It closes a loophole for some who are making pension contributions without paying NIC. This change does not change the focus from removing the allowance from the target group—higher rate taxpayers and additional taxpayers—who, according to the Minister, account for about 87% of salary sacrifice contributions. The estimate of the sum raised by this change will not reduce significantly.

Finally, this change would support workers and working families in the UK, who are the target of the Government. I very much hope the Government will have a positive approach to this amendment, and I look forward to the Minister’s response.

[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.

--- Later in debate ---

[Baroness Altmann (Non-Afl)]

My Lords, this group of amendments is, once again, trying to do the work that needed to be done before we had this Bill. All the proposals are important, in my view. Mine is a version of what we need to find out. I genuinely believe that this needs to be done independently of government because there are so many elements that government may not or seems not to have considered.

Effectively, this is another tax increase. At the margin, it can only make pension provision worse. It cannot improve it at a time when we are supposed to be trying to help people have better pensions going forward. It can only, at the margin, as I say, deter employers and employees at the current levels of provision and encourage reduction.

The Society of Pension Professionals has pointed out that 290,000 employers are using salary sacrifice in this country at the moment. We know that there is an expected saving in 2029-30 of £4.8 billion and a further saving of £2.6 billion in 2030-31, but even with those figures, the OBR points out that the revenue raised is subject to uncertainties related to the potential responses to the change. We have heard an awful lot about the potential responses to the change today and it is inevitable that, although the Prime Minister stressed in March 2025 the Government’s commitment to reduce employers’ compliance costs by 25%, this Bill alone will significantly increase the cost for those employers who have been using salary sacrifice as a way of helping their employees have a better pension outcome.

Pensions administration is already a problem that has been swept under the carpet for far too long. We know that the pension rules are ridiculously complicated and that data errors abound. If we continue to have these ongoing changes or salami-slicing of the tax advantages that pensions have, rather than one holistic review of how we provide pensions and incentivise both individuals and employers to provide for themselves in later life, then we will never end up with the kind of system we need. We will continue to add complexity to an already extraordinarily complex system.

I hope that my suggestion of a review, which would include what this Bill would do to the use of salary sacrifice as a whole by employers, will again signal to the Government what the likelihood seems to be. Given that the Bill already foreshadows future changes, employers who are currently running salary sacrifice will start to realise just how complicated it will be to adapt to the measures of this Bill. They will then think, “Are we going to have to go through this all again if the limit changes or if some other change happens? We’ll just abandon the idea of salary sacrifice altogether, and perhaps those who are already contributing more than the minimum will cut back to the minimum”. We need to be very mindful of this kind of change and whether we can have a holistic overall view of pension provision in the private sector, in particular, and the way in which we incentivise employers and employees.

[Lord de Clifford (CB)]

My Lords, I added my name to Amendment 29 in the name of the noble Baroness, Lady Altmann. She has just summed up a lot of my issues, so I will keep this brief because it is late.

I will come from the perspective of one limited experience: my business. The success of auto-enrolment is fantastic, and the salary sacrifice scheme has really helped. I have 18 and 19 year-olds saving for a pension; it is only small amounts, but it really helps them. The other thing is that those who are slightly better paid find it so easy to increase their pension contributions and then pull them down again when they need their funds. I believe this Bill will be a disincentive to those people who are trying to save a bit more.

Therefore, I support this amendment, which seeks to check that we do not lose the advantages that auto-enrolment has brought to SMEs and has forced employers like me—I think back when we instigated ours—to bring in pension schemes. There is real value to that. The experience of the noble Baroness, Lady Altmann, in pensions is a lot greater than mine, so I welcome a review, especially an independent one. It is so important that we start saving for our pensions. My noble friend Lord Londesborough came up with some statistics earlier and the report from his committee is important.

Those are the reasons why I support this amendment. It is essential that we continue to review how people save for their pensions.