National Insurance Contributions (Employer Pensions Contributions) Bill

Lord de Clifford Excerpts

Wednesday 4th February 2026 Lords Chamber

[Lord de Clifford (CB)]

My Lords, I raised the topic of today’s debate, salary sacrifice, in the Budget debate on 4 December. I am grateful to the Minister for his comments on my questions in summing up that debate. He felt that the changes to salary sacrifice pension arrangements were a proportionate measure that would mainly affect higher-rate taxpayers. I reflected on those comments. They are possibly fair, but the cost of this measure is not fair to all employees, employers and working people trying to save for pensions over their working lives.

I note my registered interest as an SME business owner and employer. For employers like my business that have benefited from NIC savings over the past 10 years, it will be another addition to our ever-increasing tax burden on employers for the privilege of employing people.

The Government have noted that there will be behavioural changes by individuals and businesses with regard to this proposed change. As set out in the explanatory notes, as many noble Lords have mentioned, NIC receipts will increase to just under £5 billion in the first year, reducing by 41% in the second. Of this reduced figure of £2.5 billion, the majority will be paid by employers. As someone who does the monthly payroll for 130 employees, of which 24 will be affected, I am aware that the extra employer NIC would mean an additional £8,500 for our business. This means that I will certainly be investigating, like other businesses, how we can pay employees’ pension contributions via other methods.

One of the benefits of auto-enrolment, as mentioned by others, is that it has encouraged more salary sacrifice to take place. Employees have found it easier to make pension contributions and additional contributions above the minimum of 5%, as it is a lot simpler to contact your employer than a pension provider, plus some employers are willing to match any additional contributions due to NIC savings. One possible outcome is that employers will make only the minimum contribution to auto-enrolment salary sacrifice schemes to avoid additional NICs, therefore creating a barrier for people to save money.

Another concern is that it is unfair on some workers. Medium earners, as my noble friend Lord Londesborough mentioned, will suffer most from this change. According to the Resolution Foundation, 75% of workers will not be affected as they do not pay salary sacrifice. Of the 25% who do, only half will be affected as their salaries are below £40,000, if pension contributions are based around 5%. Therefore, only 12.5% of workers will be affected. The highest-paid individuals—those paid over £100,000—represent 32% of the salary sacrifice contributions paid and 3% of employees, according to the Institute for Fiscal Studies. These are highly valued employees and will have the financial resources, with their employers, to look for other ways to avoid this NIC payment, for example through the optional remuneration agreements mentioned tonight, therefore reducing the tax take from higher taxpayers, which was the aim of this policy.

This change of policy will affect the medium earners of the workforce. It will be an additional stealth raid on their income and future savings. This group of earners is already being dragged into the 40% taxpayer bracket. How are aspiring members of society under 32, as my noble friend Lady Neville-Rolfe mentioned earlier, who are paying student loans at 9%, expected to buy homes, start a family and save for the future with an ever-increasing tax burden on their income?

In summary, this Bill targets employed middle earners who want to save for their future via pensions, and employers who will have to pay even more NIC. This change brings further complexity to an already complex tax system. Is it necessary? Would it not have been simpler not to bring in a change at all, as a lot of the targeted taxpayers will avoid paying this NIC, as noted by Government, or to withdraw pension payments from salary sacrifice in total, therefore making it simpler?