National Insurance Contributions (Employer Pensions Contributions) Bill

Lord Fuller Excerpts

Report stage
Thursday 5th March 2026 Lords Chamber

[Baroness Altmann (Non-Afl)]

My Lords, I first need to declare my interests as a non-executive director of a pensions administration company and as a board adviser to an auto-enrolment master trust. This is a very large group of amendments, and I thank the noble Baroness, Lady Neville-Rolfe, for her excellent introduction. The 15 amendments in this group cover a whole range of different issues, and I will try to be as brief as possible.

I start with Amendment 1, to which I have added my name, which seeks to tease out the Government’s actual policy on pension incentives. As the Minister and other noble Lords have said, around one-quarter of basic rate taxpayers whose employers are using salary sacrifice will be impacted. They will have lower take-home pay and/or lower pension contributions and, clearly, less incentive to pay more into a pension. Therefore, they have more risk of being poor in later life.

We still do not have an explanation for this limit being chosen, and the idea of limiting it to higher rate taxpayers makes enormous sense from the point of view of pension policy. Even a small number of people who are earning less than £30,000 will be caught by this. We have no explanation. I hope that the Minister might be able to help us understand where the £2,000 figure came from and why it is acceptable to hit the pensions and take-home pay of these lower earners.

Any proposal that we have heard over the years—and there have been many—for reforming the incentives for pensions have tried to suggest making the incentives for lower earners better. This Bill does the opposite. With a progressive tax system, using tax relief as an incentive mechanism will always give more generous relief to higher earners than lower earners who are on lower tax. At the moment, the availability of salary sacrifice helps to even that up a bit. If somebody is on a 20% tax rate, for every £4 they put into a pension, the basic rate tax relief gives them an extra £1. That is a 25% uplift. For a 40% taxpayer, for every £3 they put into a pension, tax relief gives them an extra £2. That is a 66% uplift. If you add in the 8% national insurance relief on top of the 20% basic tax relief, these lower or moderate earners will get a 38% uplift. If we take that away, they are back to 25%. I cannot explain how that is consistent with the Government’s aim of improving pension outcomes and helping lower earners or ordinary workers to have a better future. They will have lower take-home pay and/or lower pension contributions as a result of this policy. I understand that national insurance relief has always been a bit of an anomaly, but it is there, so taking it away makes things worse. Higher earners are only losing 2%. I hope that the Minister will look favourably on this amendment, but if the noble Baroness chooses to test the opinion of the House, I will support her.

Amendment 5 in the name of the noble Lord, Lord Leigh, to which I have also added my name, talks about the student loan problem and seeks to find a way to exempt students who are contributing more than £2,000 from higher repayments or lower take-home pay as a result of this policy. I would be grateful if the Minister could help us understand the impact on someone with a student loan who is paying more than £2,000 and will say what the Government’s proposals for mitigating are. If we do not have any such proposals, I hope the House will support the noble Lord’s amendment.

Amendment 12 and related Amendment 26 in the name of the noble Baroness, Lady Kramer, seek to address this problem in a different way by increasing the £2,000 limit to £5,000. These are both arbitrary numbers. There is no specific justification in the modelling of what pension contributions are in salary sacrifice schemes. My Amendment 13 was trying to raise the limit to £10,000, which would mean catching even fewer people but more higher earners. I accept that there is not enough support in the House for going as far as £10,000, which is the minimum contribution that the highest earners can make under the annual limit, but I would certainly support a change to £5,000.

On Amendment 27, which has just been spoken to by the noble Lord, Lord de Clifford, I understand the logic of trying to tie this to the national insurance upper earnings limit. I would support it, but I can see that the support is not widespread. In any case, adding this would make the whole administration system much more difficult to understand and complex. At least a round number of £5,000 is something that people can aim at and see whether they are over it.

The noble Lord, Lord Leigh, mentioned employers taking evasive action to avoid this before 2029. Will the Minister say what is the rush? Why, just a few weeks after announcing this, do we have this primary legislation which raises huge numbers of questions and poses such significant risks to the pension system? What evasive action can employers take? The most likely is that they will significantly reduce their pension contributions if they are not already at the minimum, or just stop salary sacrifice altogether because the costs of changing this system from the current salary sacrifice payroll provision and introducing new provisions will be significant.

This policy goes against everything the Government have rightly said they would like to achieve with their pension reforms. It makes the position of lower earners worse, it makes the pensions of lower earners worse, and it is likely to make overall pension provision worse throughout the economy. I hope that the Government might think again on some of these issues.

[Lord Fuller (Con)]

My Lords, I support Amendments 5 and 21 tabled by my noble friend Lord Leigh of Hurley, which rightly shine a light on the way in which this policy particularly benights graduates who are starting out in their careers. The Government have perpetrated the lie that the restrictions on salary sacrifice will affect only the fat cats, those with the broadest shoulders, whatever that means, the higher earners, another nebulous term, and certainly not hard-working families or those who are paid hourly. It is just not true. It is an example of Labour’s mis-selling, which is why I support Amendment 1 in the name of my noble friend Lady Neville-Rolfe. The Daily Telegraph reports that 3.3 million employees will be affected. The Times accuses the Government of wilfully obscuring the effects of their proposals on employees who are left behind after the real fat cats have run for the border.

By far the most affected group are youngsters at the start of their careers—graduates, people making a start on their working lives. They are already burdened by the Renters’ Rights Act 2025, which has driven up their rents, and the Employment Rights Act 2025, which has made it harder for businesses to take a chance on someone starting out. Graduate programmes have been bombed out by the jobs tax and dynamited by the rise in the minimum wage which reduces the incentive for employees to train up the newbies. Now we have a further insult and assault on Generation Z with the proposals of this slim Bill with fat consequences in an unthinking aggravation of intergenerational unfairness. Let nobody say that Labour is on the side of youngsters who want to get on. Even the OBR has twigged what we on these Benches have been saying for months: that the cumulative effect of all these issues is damaging incentives to work and harming those trying to climb the ladder to success.

At Second Reading, I gave the example of my daughter’s boyfriend who has a good job in the West End. He is no fat cat. He lives in a flatshare in Brixton with people he does not know, but his employer has recognised his hard work and, importantly, the value he brings to the business, so he was given a bonus of £17,000. Of that, he kept less than £6,000—a marginal rate of 71%—not just because of the tax, but on account of his student loan repayments. I do not know how it has taken so long for the OBR to realise that it does not pay to work. How much can these people be expected to bear? At least he had salary sacrifice to save for a pension for his future to reduce his reliance on the state in later life because, let us face it, employers are still shovelling cash into defined benefit schemes that are not even available to students who have to make do and mend with the less generous defined contribution arrangements instead, but even that has been snatched away by this Bill, as the noble Baroness, Lady Altmann, has so forensically exposed.

Taken together, these proposals risk salary sacrifice being taken away as a thing, which will damage employers and damage their opportunities to attract and retain the best talent because it will become just too complicated. As the Spectator’s leader last week asked, is it still worth going to university? When the world’s oldest magazine starts questioning the value of higher education, you have to wonder for our economy, our society, the future prosperity of our nation and what it says about aspiration in these islands. As somebody said last week, you used to get something from hard work, a reward for initiative, doing the right thing, but instead everyone is being beaten with a stick.

--- Later in debate ---

[Baroness Kramer (LD)]

Let me refer back to the example I gave in Committee. The noble Lord will be aware, on that additional contribution, that the graduates are paying the 8% additional in NICs but, on top of that, because it pulls them into scope of having to make repayments at the margin, the impact is 17%. It has a huge impact on graduates who are now just beginning to reach the level where they would have anticipated they would start to repay, and they suddenly hit this really serious spike. I think he has seen the numbers that some of the people have sent to us, and the Chartered Institute of Taxation could help him with those numbers if he wants to look at them. The Government, I think, recognise that problem but my answer is to fix it.

[Lord Fuller (Con)]

I think what the noble Baroness has just explained is that for those people with the greatest earnings potential, which our nation needs, there is an arbitrary cap on aspiration. There is a point which is just not worth going past. That is not just damaging for them, their families and their futures; it is also bad for the economy. That, I say to the noble Lord, Lord Davies of Brixton, is where the prejudice lies: it is on the individual, but the whole of society suffers by having the cliff edge effect that the noble Baroness is referring to.

--- Later in debate ---

Moved by

[Lord Fuller]

2: Clause 1, page 2, line 14, at end insert—
“(6DA) Regulations made under subsection (6A) must make provision enabling an employed earner to carry forward any unused part of the contributions limit from the three immediately preceding tax years for the purposes of determining the contributions limit applicable in a subsequent tax year.(6DB) For the purposes of subsection (6DA)—(a) an amount is “unused” to the extent that the amount foregone in relation to benefits mentioned in subsection (6A) for a tax year is less than the contributions limit for that year,(b) regulations may make provision about the order in which unused amounts are to be treated as used,(c) regulations may make provision about cases in which an employed earner was not within subsection (6A) for the whole or part of a tax year, and(d) regulations may make such consequential, supplementary, incidental or transitional provision as HM Treasury considers appropriate.”Member’s explanatory statement
This amendment would require regulations to provide for a three-year carry-forward of unused amounts of the annual contributions limit, aligning the treatment of salary sacrifice pension contributions for National Insurance purposes with the existing three-year carry-forward framework in the pensions annual allowance regime in Great Britain.

[Lord Fuller (Con)]

My Lords, it is a pleasure to lead this group and to present my own amendments, Amendments 2, 3, 18 and 19, and the associated report requirement in Amendment 30. I will also speak to Amendments 6 and 22 in the name of my noble friend Lord Mackinlay. My amendments are superficially similar, but they contain important differences, as identified in the explanatory statements. They are designed to make these proposals consistent with the wider canon of the existing tax system, reducing confusion and improving long-term confidence in the whole idea of doing the right thing, saving for your future and reducing your reliance on the state in later life.

Amendment 2 and the reflecting one, Amendment 18, as the mirror for Northern Ireland, address the ability of employees to carry forward unused entitlements. This is entirely consistent with the three-year rule that already applies to pension contributions, of which more later.

Amendment 3, for Great Britain, and the associated Amendment 19, for Northern Ireland, seek to protect those with variable incomes, perhaps in seasonal or weather-dependent professions. They would allow an employee with an irregular income to enjoy averaging over three years to ensure they are not disadvantaged compared with those on salaried payrolls. This is not new news. The principle of averaging is already established as part of the tax system: just look at farmers and market gardeners. So, once more, my amendments seek to apply consistency across the entirety of this tax system, and within Great Britain and Northern Ireland.

Let me focus on Amendments 2 and 18, on the carry-forward and the three-year rule. I should say that, if push comes to shove and the opportunity to divide the House arises, I will seek to press Amendment 2 to a vote. So far as carry-forward is concerned, I am thinking of an employee engaged in seasonal work with variable pay but who wants to save a regular amount each month on salary sacrifice. How does he set his regular monthly contribution at the beginning of the year, not knowing whether he will bust his allowance at the end?

The three-year rule for pensions is helpfully explained on the GOV.UK website, which says:

“You can carry forward unused allowance from the 3 previous tax years. This … allowance only applies to pension savings made to your UK registered … schemes”,


and so forth. That exists because the Government know that people have irregular incomes and, especially for the self-employed, it can take months after the tax year to get your accounts done. So, to be consistent—and this is a pensions Bill—my proposals would allow any salary sacrifice allowance to be carried forward for three years, subject to the proviso that you cannot sacrifice more than you can earn, self-evidently. Frankly, it is as simple as that.

--- Later in debate ---

[Lord Livermore (Lab)]

If it is a new employment contract, it is a new employment. It is a new job. I think that should be fairly clear. On his point about collective bargaining, it is my understanding that it would be outside of scope. Again, that will be set out clearly in guidance.

Finally, I turn to Amendments 9, 10, 24, 25, 30 and 41 from the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Altrincham and Lord Fuller, which relate to parliamentary scrutiny and propose an impact report on the contributions limit.

The core policy is set out in primary legislation to provide certainty for employers, with detailed operational matters deliberately dealt with through regulations to allow time to engage with employers. The approach we have taken follows long-standing precedent in national insurance legislation and ensures that the design is workable, fair and consistent with the wider national insurance contributions framework.

Early and sustained engagement with industry is central to the Government’s approach. The regulations will set out the detailed operational framework, including matters such as administration, process and interaction with payroll systems. These are best informed by technical expertise from employers, payroll providers and software developers themselves. Building on that engagement, the Government will consult on the regulations ahead of implementation. This will allow stakeholders to scrutinise the detailed design, raise practical concerns and begin preparing well in advance. It is through this process of consultation, guidance and industry engagement that employers will gain the clarity they need on how the system will operate in practice.

I also remind the House that a tax information and impact note has already been published, setting out the expected impacts of the policy on individuals, employers and the Exchequer. As with other tax measures, the Government will continue to monitor the operation of the policy as it is implemented and informed by ongoing engagement with Parliament and external stakeholders. Additionally, I assure the House that the Government intend to lay the regulations in good time before they commence. This will both support employer readiness and ensure that Parliament has a proper opportunity to scrutinise the regulations before they take effect.

The Bill draws a clear and appropriate distinction in relation to what matters should be dealt with by way of affirmative and negative procedure. Where regulations reduce the generosity of the £2,000 cap and increase Class 1 national insurance liability, they are subject to the affirmative procedure, ensuring full parliamentary scrutiny where contributor liability is increased. By contrast, regulations that implement the policy framework, set out administrative and operational detail or increase the cap so that less national insurance is payable are subject to the negative procedure. This reflects long-standing practice in national insurance legislation, where secondary legislation under the negative procedure is used for the operation of reliefs and matters of administration.

I also remind noble Lords that the Delegated Powers and Regulatory Reform Committee has scrutinised the Bill and raised no concerns about the proposed level of parliamentary scrutiny. Taken together, this approach provides robust parliamentary oversight where liabilities increase, while reflecting the well-established precedent for legislating for administration and reliefs through secondary legislation subject to negative resolution.

For these reasons, the Government do not believe that additional statutory requirements are necessary. In light of the positions I have set out, I hope that noble Lords will feel able not to press their amendments.

[Lord Fuller (Con)]

My Lords, I have written plenty down, but I am not going to say very much of it. I thank the Minister for accepting most generously the principle that this Bill was not ready to be passed into law, and I accept the reassurances he has given so far concerning the amendments I laid. It was absolutely right that we challenge the principle: criminal penalties should not come through regulation; they need to be in the Bill. The complexity has been outlined and, in light of the other amendments before us, I beg leave to withdraw Amendment 2.

Amendment 2 withdrawn.