National Insurance Contributions (Employer Pensions Contributions) Bill

Debate between Lord Londesborough and Lord Mackinlay of Richborough

Committee stage
Tuesday 24th February 2026 Grand Committee

[Lord Mackinlay of Richborough (Con)]

My Lords, let me make my declaration. I am a chartered accountant and chartered tax adviser, so such legislation is the thing I live for on a daily basis.

My noble friend Lady Neville-Rolfe has laid out the ambitions of pensions. Unfortunately, in the first 18 months of this new Government, pensions are seemingly no longer protected as something desirable—that is, something we wish on our population so that they can build for the future and have a good, well-funded retirement.

Let us consider what this new Government have already done. One of their first moves in their first Budget in 2024 was to lay out the framework for bringing private pensions into the net of inheritance tax. As an adviser, I have to say that, when my previous Government introduced a measure to take personal pensions out of IHT, it was a very generous measure, but it has, I think, proved its worth. I was somewhat sceptical— I am one of those people who likes a low tax regime—but having IHT-free pensions was always quite a generous measure. Over time, it has shown itself to be a very good measure, because people are contributing towards pension funds in a way they may not have been encouraged to do. That has to be to the good.

I am sure that I do not need to tell this Committee about a lot of the planning behind pensions and why people do it. The reason outlined by my noble friend Lady Neville-Rolfe for exempting lower rate taxpayers from this regime is a good one. I say this as a practitioner: if the thought is that this is some loophole that is massively exploited by the great body of UK taxpayers, that has never been my experience, I am afraid. I do not see levels of salary sacrifice that would be sufficient to have even put this on the radar in the first place, frankly.

Why do basic rate taxpayers pay into pensions? I am afraid that not enough do. Thankfully, the implementation of auto-enrolment under our last Government will, I think, bear fruit as one of the most positive footprints that we left. We will, in time, have hundreds of billions of pounds put aside in good funds. Nest has been a great success, offering a variety of funds that taxpayers can choose, from lower risk to higher risk, and there is even a sharia fund, which was news to me. No matter what, the whole spectrum of the UK taxpaying base in auto-enrolment will be building up a fund for the future. During our time in government, we thought pensions were a good; they will restrict the number of people who may be looking for or needing pension credit in the future, because they have built up a decent amount for themselves.

For the 40% taxpayer, of course, putting aside for a pension is almost a no-brainer, because the tax saving is a good in itself, even if one is putting into a slightly riskier equity-based fund. Because you protected it through a good amount of tax relief, the downside still makes taking a bit of a risk worth while. Again, over time, risk usually means a potentially higher return. For those stuck over that £100,000 to £125,140—whatever it is—threshold for the 60% rate, one does not really need to be a rocket scientist to know that using pension planning to try to get back below £100,000 is a good deal. Beyond that, at 45%, pension planning is a very good way to go. For the higher rate taxpayer, it is so obvious to do that type of pension planning. That follows some of my noble friend Lady Neville-Rolfe’s thinking that the higher rate taxpayer does not particularly need that additional help, even though I am never one to say that more taxes should be paid.

For the basic rate taxpayer, however, we need to encourage as much as we can. There is not much encouragement from the 20% relief; that is not very dynamic or exciting. Dare I say that if one stays a basic rate taxpayer, the risk of inheritance tax will potentially not fall on that type of family, given that you have two £325,000 thresholds and the relief for domestic property, potentially allowing £1 million for a couple? It is a broad-brush but perhaps reasonable guess that, if one stays a basic rate taxpayer throughout life, the £1 million threshold will probably be exempt from inheritance tax. It is exactly those people who need the help and support.

What we see with this legislation is not any grand plan for pension planning; there is a grand plan to take a little more money from a lot of taxpayers for the benefit of the Treasury. In so doing, I am afraid that this Government are in serious danger of destroying those really good foundations that we laid—with the support of the Labour Party at the time, broadly—in personal planning, particularly in auto-enrolment, and all that good work done over many years.

In support of my noble friend Lord Leigh of Hurley’s very clever observation, which had escaped me, about the recognition of income for the purpose of calculating income for the student loan, it may be that the Financial Secretary to the Treasury’s interpretation is that there is nothing to worry about and this is already covered and will never be pursued. If that is the case, a statement from the Floor today would be helpful in that regard. Even if there is some ambiguity, which I have no doubt that there is between this multitude of regulations —for national insurance, student loan and taxation purposes—I see no reason why the Government would not adopt this amendment as very sensible. I thank my noble friend for pointing out something that the drafters had perhaps not seen in the first place.

I will be speaking, no doubt, at regular points during the day, but these are my initial observations. The Government should be very careful: they are destroying a very good bedrock, which we created, of pensions that were to benefit many millions of people across this country. This is a small tax-raiser too far, which will bear dreadful fruit into the future.

[Lord Londesborough (CB)]

My Lords, I support all the amendments in the first group but will restrict my comments to Amendment 1 in the name of the noble Baroness, Lady Neville-Rolfe. This concerns the £2,000 cap in Clause 1, which unfortunately hits a crucial cohort of workers: those going through the gears, where their earnings are moving up from around £25,000 per annum to £50,000. There is a disproportionate impact on the younger end of the workforce—those getting promotions and taking on added responsibilities —whom we as a nation need to encourage to increase their pension contributions, given our rapidly ageing population. This cohort’s life expectancy may be nearer 90, if current trends continue.

There is also a disproportionate impact on our SMEs, which I will address in more detail later. Given the high preponderance of basic rate taxpayers in their workforces, the Bill will, as it stands, make growth, recruitment and retention of staff that much harder, at a time when they are still absorbing the £25 billion hike in employers’ national insurance contributions.

My final point at this stage is on bonus payments, specifically bonus sacrifice arrangements, which are a particular target of the Bill. This really is not smart economic policy, given our need for a performance-driven workforce, where bonuses on merit play a critical role in improving productivity, especially in the private sector. Frankly, they should also feature more, not less, in the public sector.