National Insurance Contributions (Employer Pensions Contributions) Bill

Baroness Kramer Excerpts

2nd reading
Wednesday 4th February 2026 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I do not enjoy the same pension expertise as virtually every other speaker tonight; I also do not think, ideologically, that I fit well with the last two speakers, who take a position that is different from mine. However, even I can see that this Bill is another example of the Treasury’s inability to align taxes with its stated economic and industrial goals, including its plans for growth. I note the points made by the noble Baroness, Lady Altmann, and the noble Lord, Lord Ashcombe, that you have one department trying to encourage people to increase their savings and pensions because of pension inadequacy—“push me, pull you” as the noble Baroness described it—and then the Treasury working, it seems, in completely the opposite direction.

On that general growth objective, I guarantee to the Government that capping salary sacrifice NICs exemptions will not add a single penny to the amount that working people save and invest. Yet savings and investments are the key drivers of the prosperity we seek. Some 3.3 million people, which is 44% of those who save through salary sacrifice, will be hit by this change.

Others have made this point, but I particularly noticed that the recent report from the Pensions Policy Institute warned in the strongest terms that people are not sufficiently building their pension during their higher earning years, which is exactly when salary sacrifice comes into play. For many people—this probably particularly affects women who take time out for childcare—higher earnings are typically for only a period of someone’s working life. Therefore, it is during that period that they need to be able to put aside that money for later life and pensions. This capping change works exactly in the opposite direction of letting them push down on the accelerator during that relatively limited period of higher earnings, when they can set money aside.

We are not talking about multi-millionaires, as people have said; this is about incentivising millions of ordinary people to put more aside during those years when their income is just sufficient to allow them to do so. I regret that the Government, rather than encouraging that approach through this Bill, are now discouraging it.

For individual workers, this change comes in the context of frozen income tax thresholds, as well as eye-watering increases in the cost of living. Many who diligently choose to live more frugally and save through pensions have already faced the changes in inheritance tax, and now they have this. The two have to be seen together as changing the psychology of many who are trying to make a decision about what to do with their money. Many will now reduce their saving for old age. How anyone thinks this will help with the demands on or the cost of social care—two of the biggest burdens that we carry as taxpayers—I simply do not know.

For businesses, especially small businesses—the noble Baroness, Lady Maclean, spoke as a living example of someone with a small business, as is the noble Lord, Lord de Clifford—this is just another tax rise at a time when so many other costs have been thrown on to businesses. We debated business rate changes just last week.

While larger businesses may find other ways to help their employees—it has certainly been clear from some of our speakers that there are mechanisms that they can turn to—most small businesses do not have that capacity. The cost of both employee and employer NICs, especially in small businesses, tends to fall on the workers in the end. It creates a real differential between being employed by a big firm or a small one. The Federation of Small Businesses has looked at this Bill and warned of the impact on staff retention. I just wonder: does no one in the Treasury understand that an expanding small business sector is the backbone of the economy, our major source of new jobs, the underpinning of communities and the birthing ground for key industries of the future?

Then we have the investment impact of curtailing pension savings. Only yesterday, in Committee on the Pension Schemes Bill, we were dealing with the Government's concern to direct pension savings into investment in the UK economy, from private equity into infrastructure—absolutely core and key to their growth agenda. How on earth does this Bill help that? In fact, how does it not hinder it? The Mansion House Accord, on which so much of the Pension Schemes Bill rests, applies only to a small part of the pension world: auto-enrolment by low earners. If the Government are seriously looking for a step change in investment into the UK economy and into the riskier parts of the UK economy, it is exactly the money that goes into salary sacrifice schemes that they require to undertake those kinds of ventures.

The noble Lord, Lord Londesborough, talked about the timing of the Bill and the potential for front-loading salary sacrifice schemes over the next few years. That is a point that the Government need to address. The timing of when this comes in is truly weird. I cannot work out whether the change that takes place in 2029 is essentially an actual change or an attempt to game the fiscal rules. We are past the point where any of us want to accept the gaming of fiscal rules anymore. We know what it did under the last Government, and we do not want to see it repeated here.

I give way to others who talked about the practical impacts: what do you do with someone who changes jobs? How do you deal with the paperwork and the systems? I am very conscious that those things that get brushed aside often turn out to be huge stumbling blocks. We need to hear more from the Government on that.

The prize for any Government when it comes to pensions is to get people to save in their times of higher earnings as much as they reasonably can. That is what reduces demand on the taxpayer for social care and benefits in old age. Frankly, with our ageing population, it is increasingly vital, not less vital. This Bill simply pushes in the opposite direction. We need to address that through serious amendment.

National Insurance Contributions (Employer Pensions Contributions) Bill

Baroness Kramer Excerpts

Committee stage
Tuesday 24th February 2026 Grand Committee

I am grateful to the noble Lord, Lord Leigh of Hurley, for identifying so clearly in his Amendment 3 the adverse effects on those with a student loan, but this Bill perpetuates other forms of intergenerational unfairness. It is already harder for employers to pay good pensions to youngsters on defined contribution schemes when they are shovelling cash into addressing the deficits on defined benefits schemes for older employees, those schemes being closed to new entrants. It risks removing salary sacrifice as a thing for many employers, which will damage the opportunities for them to get the best staff, because it just becomes too complicated, for reasons that we will dwell on in the next group. It is important that this slim Bill is challenged, because it makes it harder for youngsters to get on. The tail needs to be pinned on the donkey. The Government are not on the side of the youngsters—we need to be saying that—and this Bill proves it.

[Baroness Kramer (LD)]

My Lords, I made my views on this Bill fairly clear at Second Reading, so I am going to try to observe the discipline of not repeating my Second Reading speech. I am sure that I will not be absolutely 100% on that, but I am going to try.

I want to look first at this group of amendments. Amendments 1, 2, 14 and 15 put forward by the noble Baroness, Lady Neville-Rolfe, are particularly relevant because I do not think that at Second Reading we came away with a clear understanding that basic rate taxpayers were going to be significantly caught by the changes in this Bill. The focus on higher earners— I agree very much that we need “higher earners” to be properly defined—leaves us with a mistaken impression. I hope very much that the Government will provide some degree of clarity—the noble Baroness, Lady Coffey, called for the evidence—on who is impacted and how they are impacted. We ought to have that information in front of us. I will be troubled if this captures people on basic rate tax, given the pressures that they already face.

I would like to focus much more strongly on Amendments 3 and 16, because I do not think that at any point at Second Reading we addressed the impact on graduates repaying student loans and the impact on their take-home pay. I want to thank a gentleman called Tim Camfield who did some calculations and forwarded them to me because, as I worked through his calculations, it seemed to me that he had to be right. He wrote in the context of reading a response from the OBR to what I understand was an FOI in which it said that it did not believe that the Bill had any impact on student loans. It seems to me that very evidently it does and we need to know that. If the Government do not intend it and are going to have a workaround that will prevent it, then frankly we need to know that as well.

We all know that students have been under extraordinary pressure and that the Government openly have frozen the starting repayment threshold, but this, in effect, if Tim Camfield and others are right, would be a backdoor, further blow to this group. Whenever people say “student loans” and you are a Liberal Democrat, it is important to say—and I do not want to give a speech on our new policy—that my party recognises its role in creating the student loan repayment scheme. But frankly, the scheme is so changed, and graduates are under such pressure, that we now recognise that it is broken. I will not go through our policies—they are extensive—to completely reform that system.

I look now to the Minister to give us some real clarity, both on who is impacted and how extensively—how a normal person might read that as being an ordinary worker on a relatively modest income, rather than just a higher earner—and on the issue of student loans. I have some information on the distributional analysis that I will use in group 3 but, on the principle of trying not to repeat myself constantly, I will wait until then.

[Lord Leigh of Hurley (Con)]

My Lords, prompted as I am by my noble friend Lord Mackinlay, may I just take a moment to remind the Committee that I am a member by qualification of the Chartered Institute of Taxation and have received very helpful briefings from it?

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[Lord Davies of Brixton (Lab)]

Yes; I thank the noble Lord for his advice. As I said, I have operated the system myself, and so he is really just making my point: the structures are there to deal with multiple employments. It is not being introduced to the issue by this particular measure. Obviously it would be more complicated with this measure—I accept that, and I look forward to my noble friend the Minister’s response on that issue—but it is not a new issue.

[Baroness Kramer (LD)]

My Lords, as with the previous group, the noble Lord, Lord Davies of Brixton, made a comment on what he thought was Lib Dem policy; it might be—I am just not sure. We have discussed simply kicking out all this complexity and having a flat rate of relief on pensions. After listening to the last debate, I think that that has probably accumulated a lot of votes from around this Room, because the complexity that we have had described under this group of amendments is absolutely extraordinary. The noble Baroness, Lady Altmann, referred to the banana skins, and I think the noble Lord, Lord Leigh, talked about it being a nightmare. I am troubled that all of this is being left to consultation with the industry and to future regulation and future guidance, as if it can all be absolutely sorted with a bit of quiet attention. But we have heard the problems of how you deal with the many cases where people have multiple employers.

The noble Lord, Lord Mackinlay, made it clear that it is a relatively small handful of people who at present have to be dealt with through the Department of Work and Pensions to make sure that there is not a complexity. However, this would now apply to all kinds of people across a very wide range of activities and income. Trying to deal with the complexity of all these measures and delaying that has got us very disturbed. It is a bad principle for legislation. It is not that there is not a role for regulation and guidance, but that essentially should just be doing the finesse on a policy that has been clarified, whether it is in primary legislation, through evidence put before Parliament or through Statements made by the Ministers.

I think we have a real concern that this is going to turn out to be absolutely unworkable. The consequences of that, both for public finances and for individual decisions made by people, probably means that this legislation will collapse at some point. We ask the Minister to go back to the department and make it clear that clarity is absolutely necessary. If there are problems here that can never be reasonably and sensibly resolved, they should be recognised at this stage.

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[Lord Livermore (Lab)]

I am grateful to the noble Lord for his further thoughts. The carryover feature—

[Baroness Kramer (LD)]

I do not want to be problematic here, but I wonder whether the Minister can understand that we are looking at a very different Bill and very different implications if the £2,000 contribution limit is per individual across a range of employments, or per job, and perhaps they have three or four. It is a fundamental difference, and while the details of how things would be done in the future and the operational issues may well have to wait for regulation, guidance and consultation, it seems to me that that core issue defines this Bill, and we should know that before we complete its passage.

[Lord Livermore]

Obviously, I hear what the noble Baroness says.

The carryover feature of the pensions annual allowance, referenced in the justification for the amendments tabled by the noble Lord, Lord Fuller, sets the maximum amount of tax-relieved pension savings an individual can build up in a tax year without triggering a tax charge, which for most people is £60,000. The carryover feature is intended to accommodate one-off irregular spikes in pension saving or defined benefit accrual. The annual allowance carry-forward requires individuals to hold or obtain accurate records to track usage and eligibility and is not intended for day-to-day retirement planning. The Government do not consider it suitable to introduce a similar mechanism in the context of the cap on national insurance contribution-free pension saving in the Bill.

Before the detailed regulations that support the introduction of this change are finalised, HMRC will work closely with employers, payroll providers and software developers to ensure the policy operates smoothly for businesses and individuals. This engagement is not a formality. It is a necessary step to ensure that we collaboratively identify the best and most workable way to apply the £2,000 national insurance contributions-free limit, minimise administrative burdens and avoid unintended consequences, particularly for those whose earnings are spread across more than one employment.

Taking the time to engage properly and test implementation options is the best way to ensure that the policy works as intended from the outset. That is why the Government have committed sufficient time to work with stakeholders, up to and including the preparation of the important guidance for operation that the noble Lord, Lord Fuller, has raised in Amendment 29A.

On Amendment 29A, which proposes a reporting provision on the administrative cost borne by employers, I note that, upon the introduction of the Bill to Parliament, a tax information and impact note was published by the Government, setting out the impact of this policy’s operationalisation on employees and their employers. Supporting those who will implement this change within their organisations is vital, but we do not agree that that support should take the form of additional reporting requirements.

In light of all the points I have made, I respectfully ask noble Lords not to press their amendments.

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[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.

[Baroness Kramer (LD)]

My Lords, this is the group of amendments on which I have been the most focused. I will not repeat my Second Reading speech, in which I talked about the importance of growing pension savings to fuel the growth agenda, but the Government must realise that this policy just does not align with that. However, I hope that the Government are beginning to understand that life today is long and it is not easy to put aside enough from the working years to achieve a decent retirement without depending on the state. According to the Resolution Foundation, changes made under the Bill will hit at least half of those who use salary sacrifice, affecting a large number and a wide range of households.

Different noble Lords, as we see in the amendments here, have proposed different increases to the contributions limit. Amendments 7, 10, 11, 20, 22 and 23 are in my name, and I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord Londesborough, for signing some of them. The core of my amendments would increase the contributions limit from £2,000 to £5,000, preferably with a further annual increase linked to RPI. I confess that there is not a lot of science behind my choice of £5,000, but running it past people who deal with pensions, I began to think I had hit a sweet spot with that figure. The response was that it would support people making the rather difficult choice of what to do with their money and provide a little more of an incentive to save in a pension rather than to spend.

As part of this process, my colleagues in the other place were able to obtain some research from the Commons Library, using PolicyEngine and its interactive dashboard. That work is not definitive but it provides a useful picture of the distributional effects of raising the contribution limit. An uplift of £5,000 would give the greatest gains to the two top income deciles—we would all expect that. But just a shave behind those two deciles, the next highest gainers are the second decile, which is not, I expect, the result that the Government would have predicted. This group would have within it a cohort of young people, probably in their early to mid-20s, perhaps one pay rise into their careers, still willing to live in shared accommodation and to live quite frugally, and not yet trying to pay off student loans, get a mortgage or support children. Surely this is the group that any Government should target to get into saving for a pension in a big way.

Early investment enables a pension pot to grow, but it is a narrow window. As people move into the age of families and mortgages, they cut or even stop pension savings, and women are even more affected if they reduce work to care for children. Only later in life do people return to significant savings and by then it is very late in the day. Frankly, we should make sure that they also have strong incentives to save at this point in their lives to avoid sharp drops in living standards in old age. I think the Government have looked at earners as if they belong to fixed blocks: low earners, middle earners and high earners. In reality, most people’s profiles as earners and savers change as they go through life, and the incentives therefore have to be shaped to maximise and to meet that profile.

Some of my amendments would increase the £5,000 contribution limit annually by RPI. The noble Baroness, Lady Neville-Rolfe, discussed increasing the £2,000 limit by CPI. I know that the noble Baroness, Lady Altmann, considers this an additional complication but, frankly, we have to tackle this issue of frozen thresholds, which in eras of inflation have just such a negative impact.

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[Baroness Kramer (LD)]

My Lords, as we discussed at Second Reading, the Federation of Small Businesses has warned that the impact of the Bill could meaningfully disadvantage small businesses. In a way, I look at social enterprises and charities as, essentially, a subset of the SME sector. Big businesses can often devise ways and perks to reward people that are simply not available to SMEs, so they can dampen the impact of the Bill on their workforces and widen that competitive gap.

As a consequence of that, I thank the noble Lord, Lord de Clifford, for signing Amendment 27 in my name, and the noble Lord, Lord Londesborough, for saying that he would have signed it. Frankly, when these noble Lords give warnings on what will happen and what is happening in the small business sector, I really hope that the Government are listening because, unfortunately for our economy, their track record has a real history of being correct, and those warnings need to be taken seriously.

As other noble Lords have said, SMEs are already under pressure. I am not going to repeat the saga of the burdens on them, but we have to recognise that this is a time when we absolutely need small businesses to accelerate their hiring, especially of young people, and make serious investment in productivity and growth. Once again, this is another measure where I can see no alignment between the Bill and the Government’s industrial strategy or growth policy. It seems to pull in completely the wrong direction.

Amendments 12 and 24 would straightforwardly exempt SMEs. Amendment 27 in my name would give the Government a chance to make their case, in a sense, because it would require a detailed review within 12 months of the Act being signed, which is obviously long before the Act will come into force. The review would target the two issues that we have said are so critical—SME recruitment and retention—and would also look at this matter in the context of the cumulative impact, particularly of NICs changes since this is a NICs Bill. It seems wise to encompass a look at these two NICs changes as being linked and entangled in the way they impact on small businesses.

I do not want to take up much more of the Committee’s time, but it is important to stress that this is not the time for uninformed decision-making; that has been echoed through group after group of amendments. I am not rejecting the other amendments but Amendment 27 would be a relatively modest way for the Government at least to do something that begins to put evidence before Ministers and Parliament.

[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords who have spoken in this debate. First, I will address Amendments 18 and 24 in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, which would exempt small and medium-sized enterprises, charities and social enterprises from the Bill.

The Government agree on the importance of supporting small businesses and ensuring that they are not unduly impacted by these changes. Small and medium-sized enterprises are far less likely to offer pension salary sacrifice than larger businesses. According to Nest Insight, around 33% of small businesses offer pension salary sacrifice to their employees, compared with 83% of large businesses. In addition, employees of small and medium-sized enterprises are far less likely to have contributions exceeding the £2,000 cap; only 10% of employees in SMEs have pension contributions through salary sacrifice exceeding the cap. Exempting small and medium-sized enterprises in the way suggested by the amendment would therefore introduce significant additional complexity into the tax system and would be disproportionate given the limited impact that this policy is expected to have on these businesses. The Government are engaging with employers and other industry stakeholders ahead of these changes coming in.

Similarly, Amendments 26 and 27 in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, and the noble Lords, Lord Altrincham, Lord Londesborough and Lord de Clifford, would require a review of the impact of the Act on small and medium-sized enterprises. As I have already said, the Government agree about the importance of supporting small businesses. The changes in the Bill will mainly impact larger employers, which are much more likely to use salary sacrifice and to have employees who are contributing above the £2,000 cap.

More widely, the Government are delivering the most comprehensive package of support for small and medium-sized businesses in a generation through the small business strategy, unlocking billions of pounds in finance to support businesses to invest and removing unnecessary red tape. Ahead of the cap coming into operation, the Government will continue to work closely with employers, payroll administrators and other stakeholders to ensure that the changes are implemented in the least burdensome way for businesses of all sizes currently using salary sacrifice.

In the light of the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.

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Moved by

[Baroness Kramer]

28: After Clause 2, insert the following new Clause—
“Calculation and publication of lifetime pension values(1) The Secretary of State must calculate and publish illustrative projections of the lifetime value of pension savings before and after the changes made by this Act.(2) For the purposes of this section, “lifetime value” means the total pension income an individual is expected to receive over their lifetime.(3) Projections must—(a) be based on clearly stated assumptions, and(b) include examples covering a range of income levels and pension entitlements.”Member’s explanatory statement
This amendment seeks to require the publication of illustrative lifetime pension outcomes.

[Baroness Kramer (LD)]

My Lords, I will try to be speedy. The amendments in this group in various ways would require that the work to assess the impact of the Bill on pension savings and pension incomes is done and put before Parliament. My Amendment 28 would make this a responsibility of the Government. Amendments 29 and 30 in the names of the noble Baronesses, Lady Altmann and Lady Neville-Rolfe, would require an independent review. These three amendments have different degrees of detail and emphasis, but I suspect they can easily be redrafted to cover all the key elements.

It seems to me that behind all these amendments sits a basic question: did the Government do their homework? If they had, they could pretty much hand us everything we have requested tomorrow morning. I fear that this has been another off-the-hoof policy where the Government poorly understand the consequences, and I think that needs to be exposed and dealt with. It is true that implementation of the policy is not until 2029, probably the other side of another general election, but, frankly, that is not an excuse for doing this wrong, for not having the evidence and for not making it available. That is what I think every amendment in this group seeks to achieve in a different way. I beg to move.

[Lord Altrincham (Con)]

My Lords, Amendment 30 has a simple purpose: to ensure that before the Act is commenced there is an independent review of its impact on pensions adequacy—which we have been talking about again and again through this Committee—saving behaviour and on those repaying student loans, and that Parliament must see the findings before the provisions take effect.

Pensions adequacy is one of the central long-term economic challenges facing this country, and under the Government it is set to get far worse. The Institute for Fiscal Studies’ report Adequacy of Future Retirement Incomes: New Evidence for Private Sector Employees could not be clearer. On current trends, around four in 10 private sector employees saving into defined contribution schemes are projected to undershoot the Pension Commission’s replacement rate targets. Even using a far more modest minimum living standard benchmark, a substantial minority are not on track to reach it.

The IFS also makes a crucial point that, since the Pensions Commission report 20 years ago, lower returns on saving and longer life expectancy mean that the savings rates required to hit adequacy benchmarks are higher than previously thought. In other words, the adequacy challenge has intensified, not diminished. Yet what are the Government doing in the Bill? They are altering one of the key mechanisms through which many working people build their retirement savings without any independent assessment of what that will mean for adequacy.

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[Lord Livermore (Lab)]

My Lords, I am grateful to all noble Lords for their contributions to this debate.

I turn first to Amendment 28, tabled by the noble Baroness, Lady Kramer, which seeks the publication of illustrative projections of lifetime pension saving values before and after this change. The Government do not agree that this amendment is necessary to provide the required information on personal pension saving outcomes. The impacts of the measures in the Bill, including on employees and employers, are already set out in the tax information and impact note published alongside the Bill’s introduction.

Additionally, the Government published a policy costing note, which includes detail on the tax base and static costing as well as a summary of the behavioural responses expected by individuals and employers. The Office for Budget Responsibility has set out impacts in its economic and fiscal outlook, making it clear that it does not expect a material impact on savings behaviour as a result of the tax changes made in the Budget. Similarly, there are already a number of existing tools and services that individuals can use to understand their personal financial position and estimate their potential retirement income.

Amendments 29 and 30, tabled by the noble Baronesses, Lady Altmann and Lady Neville-Rolfe, and the noble Lords, Lord Altrincham and Lord de Clifford, would require the Government to take advice examining the impact of this change on employers, pension adequacy and workers’ pay. They also seek to make commencement of the Act conditional on the publication of an independent review of its effects, including on pension adequacy. The impacts of this measure have already been set out across the range of usual publications for changes to national insurance; these include the published tax information and impact note and policy costings note, as well as the Office for Budget Responsibility’s economic and fiscal outlook.

These amendments raise a wider point about the role of salary sacrifice in the pension salary saving system, particularly in relation to incentivising saving and improving pension adequacy. It is important to place this measure in context. Salary sacrifice existed in the 2000s and early 2010s, yet, during this period, there were falls in private sector pension saving. The key factor that has led to an increase in saving in recent years, as many noble Lords have noted in this debate, is automatic enrolment. As a result of automatic enrolment, more than 22 million workers across the UK are now saving each month.

Although all of us here share a commitment to improving pension adequacy, many groups at higher risk of under-saving—including the self-employed, low earners and women—are not the most likely to benefit from salary sacrifice. Only one in five self-employed people save into a pension, but they are entirely excluded from salary sacrifice. Low earners are most likely not to be saving, but higher earners are more likely to be using salary sacrifice. Many women are under-saving for retirement, but many more men use pension salary sacrifice.

The pensions tax relief system remains hugely generous, and there remain significant incentives to save into a pension. The £70 billion of income tax and national insurance contribution relief that the Government currently provide on pensions each year will be entirely unaffected by these changes.

Given the points I have made, I respectfully ask noble Lords to withdraw or not press their amendments.

[Baroness Kramer (LD)]

I beg leave to withdraw my amendment.

Amendment 28 withdrawn.

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[Baroness Neville-Rolfe (Con)]

My Lords, my amendment in this group seeks to make the commencement of this Act conditional upon the publication of an independent review of its impact on employers.

The Government’s decision to cap national insurance relief on salary sacrifice pension contributions at £2,000 per year has been presented as a measure targeted at higher earners, but the reality, as those of us who have spoken to businesses up and down the country know, is rather more complicated than that. This is not simply a matter of adjusting the tax affairs of a few well-paid executives. This measure hits employers directly and in ways that Ministers have not thus far adequately costed or explained. For small and medium-sized enterprises in particular, the costs are not trivial. Many have structured their entire remuneration and pensions offerings around salary sacrifice arrangements. They have done so because it is administratively straightforward, it benefits their staff, and it has had the backing of the previous Government as a sensible way to encourage workplace pension saving. Those businesses now face not only higher employer national insurance costs but also the compliance burden of unpicking arrangements that may have been in place for years.

Let us be plain about what this means for a small business. We are talking about firms with perhaps 20 or 30 staff, businesses that do not have large HR departments or in-house tax teams. They will need to review every employment contract, revisit their payroll systems and, in many cases, seek professional advice to understand their new obligations. What is particularly troubling is that we have not seen from the Government anything approaching a comprehensive assessment of these impacts. We know that HMRC consulted last year, but it got a dusty answer. The OBR has produced some high-level revenue estimates, which do not reassure us, and we know from the Treasury note that it expects this measure to raise several billion pounds by the end of the Parliament. But what we have not seen, and what employers and employees alike are entitled to expect, is a proper independent analysis of what this means in practice, especially for SMEs and middle-income employees.

There has been no serious attempt to model the indirect costs, the effect on employer pension contributions, the likelihood that firms will scale back their own contributions to compensate for higher tax costs, or the impact on workforce retention where salary sacrifice has been used as a recruitment and benefits tool. The OBR itself has acknowledged significant uncertainty in its projections, noting that revenue yields are highly sensitive to behavioural change—a very important point—and yet the Government press ahead without the evidence base one would expect for a measure of this scale.

My concern—which is shared by a range of voices in the pensions industry and in business groups and among those who have looked carefully at the measure— is that, in restricting salary sacrifice without proper analysis, the Government risk undermining the very pension-saving behaviours they claim in other contexts to support. As the ABI has put it, savers and the pension system need stability. What we should not be doing is swapping pension stability for short-term revenue raisers.

The Minister has cited a number of statistics on the numbers whom HMT anticipates will be affected, but these fail to recognise that the Government have almost no idea of how employers and, therefore, employees would respond and be affected by those changes. As I have already mentioned, the OBR has said that there is a high level of uncertainty over the size of the behavioural response. If an employer stops offering a salary sacrifice because of the compliance costs and complexity, as many of them have warned they will, then every one of their employees will be affected. So how can the Minister say that 74% of basic rate taxpayers will be left unaffected when HMT has no idea how the organisations employing them will react to the Bill? Indeed, the detail is still unclear. The point many noble Lords have raised stands: the Bill brings a great deal of uncertainty, and the Treasury does not understand the wider effects of what it is proposing—thus my wish to delay commencement until we have a clearer view.

I welcome Amendment 32 in the name of the noble Baroness, Lady Kramer, which references the OBR’s supplementary forecasts. I do not want to steal her thunder, but the issues this forecast raises are numerous. Of particular concern are the behavioural changes that it anticipates. The OBR estimates that behaviour reduces the 2030-31 yield by around 48% compared with the static figure. Employers are assumed to redirect pay growth into employer contributions, employees are assumed to shift into relief at source or net pay arrangements, and there are additional pass-through effects into wages and profits. In other words, nearly half the static yield depends on assumptions about how employers and employees respond. The options open to employees and employers are numerous, and they have three years to think about it.

Another serious concern highlighted is that HMRC does not hold comprehensive data on salary sacrifice usage. As we understand it, the modelling used by the OBR relies heavily on ASHE survey data and historic APSS 107 returns to estimate bonus sacrifice behaviour. The OBR therefore assigns this measure a medium-high uncertainty rating with particular uncertainty around behavioural responses and the size of the bonus sacrifice base. This policy is uncertain. How will it affect savings, how will it affect behaviour and, significantly, how much will it raise and for how long?

I know others may have questions for the Minister, but the new arrangements come into operation in 2029-30 and, as we have all been saying, there is time for more questions to be asked and answered and for more work to be done. I hope the Minister will look at these various amendments positively. I thank the Deputy Chairman for his clarification on timing, and I beg to move.

[Baroness Kramer (LD)]

My Lords, the noble Baroness, Lady Neville-Rolfe, has relieved me of the burden of trying to explain the primary clause within my amendment, which would require a formal review and report on the OBR supplementary forecast information release. As she said, this came out on 5 February, I understand in response to an FoI request, which, frankly, is no way to provide information to Parliament. As she said, it concludes that behavioural response to the measure—and that is key to the impact that this Bill will have—is highly uncertain. The further detail that she provided is so similar to what I would have provided that I am not going to repeat it. I thank the noble Lord, Lord de Clifford, for also signing this.

The other part of the review would cover the operational remuneration arrangements and the impact on pension adequacy and salaries. I know the Minister thought he covered this issue, but I think he could tell that in the Room uncertainty continues. Further clarification is needed around this issue because employers are going to be looking for that. This is an opportunity to provide it.

I have to say that I do not think I have ever seen an OBR report that is so filled with the word “uncertainty”. Obviously, it stands behind what it has written, but it does not feel like a report that has been written with a great deal of confidence. That confidence needs to be in place for Parliament to act on legislation.

[Lord de Clifford (CB)]

I have the pleasure of supporting the amendment from the noble Baroness, Lady Kramer. At Second Reading, I raised behavioural change and the OBR’s forecast about the drop in income is essential. Employers will look to find the most tax efficient way to make pension payments, and therefore we need the OBR to make sure that it accounts for these payments. As an employer, although it will increase administration, if there is a saving to be made, we will look for opportunities to pay pension payments in alternative ways. We covered that earlier, and the Minister gave a little reassurance that employer pension contributions may be acceptable and will not be counted as a salary sacrifice. As an employer, that would be welcome.

National Insurance Contributions (Employer Pensions Contributions) Bill

Baroness Kramer Excerpts

Report stage
Thursday 5th March 2026 Lords Chamber

[Lord Davies of Brixton (Lab)]

I thought I said in my earlier remarks that there will be a marginal effect: I accept that, although we do not actually know what that marginal effect will be. It is all hypothetical at the moment. One thing we do not know from the OBR figures is quite what the reaction will be and how people will adjust their behaviour between now and when this comes in.

I accept the noble Baroness’s point but, as I say, nobody likes paying tax and nobody wants to pay more tax. If you ask people whether they want to pay more tax they say no, but it has to fit in with the Government’s overall financial strategy.

Of course, only some people gain an advantage from salary sacrifice. Many private employers just do not offer it. The number is increasing all the time, which is part of the problem because it is increasing the cost. Nobody in the public sector benefits from salary sacrifice. We can, and will, have an interesting debate about public service pensions, but noble Lords should understand that it is unequal that people in the private sector can take advantage of salary sacrifice but people in the public sector cannot.

[Baroness Kramer (LD)]

My Lords, I thought it might be best to combine standing as a winder and talking for a few moments to the two amendments in this group that are in my name. I start by thanking the noble Baroness, Lady Neville-Rolfe, who made an incredibly powerful speech to introduce the whole series of amendments in this group. I thank her for signing my two amendments, Amendments 12 and 26. Amendment 26 is the Northern Ireland parallel to Amendment 12, so we need not treat it separately. I also thank the noble Lords, Lord Altrincham and Lord Londesborough, for signing my amendments. The noble Lord, Lord de Clifford, would also have signed them had space been permitted on the Marshalled List.

I also talked very extensively, both at Second Reading and in Committee, and I will try to discipline myself not to repeat those comments, particularly because speaker after speaker has so fully described the issues that are at stake. I find myself in complete disagreement with the noble Lord, Lord Davies of Brixton, which does not happen very often, but I think that the Government will recognise that, for a whole series of political leanings around the House, there is very common ground on this issue.

My Amendment 12, as others have described, would lift that limit on salary sacrifice contributions subject to NICs relief to £5,000 a year. I discussed in detail in Committee why I talked to various people and came to that number, but the key point I want to emphasise—others have made it, but let me make it again—is that it would strongly benefit younger people and quite low earners. We are looking primarily at the second decile of earners, who are probably on their first or second pay rise. They are still low earners and still living a life much more akin to that of a student. They are sharing accommodation and do not yet have mortgages, children or families. Many have, very responsibly, with the nudge that is given by this tax relief, been encouraged to start seriously saving for pensions, well in excess of that £2,000 benchmark that the Government propose.

As these people move on in their lives and acquire children and mortgages, their pension savings drop. Those very early savings that then have a chance to accrue over a working lifetime are very significant in the end result to the quality of pension that they receive. That is why we took an approach that we thought would, in a very simple way, enable this group of people to continue with that incredibly positive behaviour.

In this group, I will certainly support the amendments that the noble Baroness, Lady Neville-Rolfe, will choose to move. I want to make particular reference to the amendment from the noble Lord, Lord Leigh, on student loans. It is absolutely essential. The Government have recognised—at least, this is what I understood from the Minister’s responses in Committee and at Second Reading—that the Bill quite unintentionally puts serious additional costs on to graduates. I find it absolutely ridiculous that, having recognised that there is an unintentional impact and that it is problematic, the Government are not correcting it in this Bill. As far as I can understand, they are waiting for some future piece of legislation to make that change.

[Lord Davies of Brixton (Lab)]

May I just press the noble Baroness on the point she made about serious additional costs? Would she care to quantify what those serious additional costs are?

[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.

[Baroness Kramer (LD)]

On this issue of students, I really think this is unintentional, taking the Minister and others at their words. That is why accepting the amendment from the noble Lord, Lord Leigh, and correcting the issue now is something that I consider to be very important.

As I said, there is no need for me to keep speaking. I have made it clear that I will support quite a number of the other amendments in this group if they are moved, because collectively they address a fundamental problem. I appreciate all the comments that have been made in support of the amendments in my name.

[Lord Londesborough (CB)]

My Lords, I support broadly all the amendments in this group, but specifically Amendments 12 and 26 in the name of the noble Baroness, Lady Kramer, to which I added my name. I will be genuinely brief. These amendments, by raising the cap to £5,000 per annum, would address a core problem in the Bill: the limiting or deterring of the so-called moderate earners we have heard about from contributing sufficiently to their pension pots, which, as we already know, are nowhere near sufficient for the vast majority to fund their retirements. We are talking about retirement periods of 25 to 30 years if demographic trends continue. As we have heard, this includes many in the early stages of their working lives who need to get into the habit of contributing to pensions at the formative stages of their careers.

I remind the House of a stat that came out in Committee. On average, our current workforce will outlive their pension savings by eight to nine years, and this funding gap is widening year by year. Clause 1 is, in effect, raiding pensions to keep the Treasury within its fiscal rules in three years’ time. It is another crude example of kicking the can down the road, leaving another generation to sort out another widening deficit.

I was interested to hear the comments from the noble Lords, Lord Leigh and Lord Ashcombe. They raised some pertinent questions over the revenue-raising forecasts. I also fear that the Treasury has wildly underestimated the level of accelerated salary sacrifice over the next three years in the run-up to these measures. I have witnessed a number of business plans in companies that I am involved in; I should, of course, declare my interests as set out in the register.

To conclude, I fully endorse the excellent opening comments from the noble Baroness, Lady Neville-Rolfe, and the comments we just heard from the noble Baroness, Lady Kramer. I encourage your Lordships to support their amendments should they decide to test the opinion of the House.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, I am very grateful to all noble Lords who have contributed to this first group of amendments. I turn first to Amendments 1 and 17 in the names of the noble Baronesses, Lady Neville-Rolfe and Lady Altmann, and the noble Lord, Lord Altrincham, which seek to exempt basic rate taxpayers from the Bill. As the noble Baroness, Lady Neville-Rolfe, noted, the vast majority—74%—of basic rate taxpayers using salary sacrifice will be unaffected by the changes in this Bill. Specifically, three-quarters of those earning up to £50,270 and using salary sacrifice will be entirely protected, and that rises to 95% when looking at those earning £30,000 or less who use this mechanism to save into their pensions. The minority of basic rate taxpayers with contributions above £2,000 will continue to benefit from employee national insurance relief worth £160 a year in addition to the full income tax relief they receive on their pension contributions. Half of those basic rate taxpayers contributing above £2,000 will face an additional national insurance contribution liability of less than £50 a year.

Exempting basic rate taxpayers would also be exceptionally difficult to operate in practice and would add considerable additional administrative burden on to employers. That is because, unlike income tax, national insurance does not operate on an annual aggregated basis, nor does it determine liability by reference to an individual’s final tax position. An individual cannot be confirmed as a basic rate taxpayer until their full income position is reconciled at the end of the tax year, taking account of potentially multiple employments and other sources of income. To apply a tax band-based exemption, employers would be required to undertake year-end reconciliations across employments and account for other sources of income as well that sit wholly outside the design of the national insurance contributions system. This would represent a fundamental departure from established payroll processes, imposing significant complexity, cost and risk on to employers and payroll providers.

Amendments 16 and 29, in the names of the noble Baronesses, Lady Neville-Rolfe, Lady Kramer and Lady Altmann, and the noble Lord, Lord Altrincham, seek exemptions for small and medium-sized enterprises, charities and social enterprises. Exempting small and medium-sized enterprises and charities in the way proposed by the amendment would add considerable complexity to the tax system and would not be proportionate to the limited impact this policy is expected to have on those businesses. The changes in this Bill primarily affect larger employers, which are significantly more likely to operate salary sacrifice arrangements and to have employees contributing above the £2,000 cap.

Small businesses are significantly less likely to offer salary sacrifice than larger businesses. Only 28% of employees in SMEs use salary sacrifice for pension contributions, compared to 39% in larger firms. When it comes to contributions above the £2,000 cap, the difference is even clearer. Only 10% of employees in SMEs make pension contributions through salary sacrifice that exceed the value of the cap, compared to 18% of employees of larger firms. This underlines that the largest benefits from uncapped salary sacrifice are concentrated in bigger firms, not smaller firms.

In practice, the changes in this Bill will level the playing field between small businesses and their larger competitors, ensuring that the national insurance contribution advantages of salary sacrifice are not disproportionately concentrated among employees in big firms. More widely, the Government recognise the importance of supporting small businesses and charities alike.

This leads me to Amendments 7 and 23 in the names of the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord Altrincham. These amendments seek clarity on the basis on which the Government consider certain employed earners to be higher earners for the purposes of the national insurance charge and how the contributions limit reflects that assessment. The Explanatory Notes for this Bill set out clearly that the Government’s objective is to limit the national insurance contributions relief available to higher earners on employer pension contributions made through salary sacrifice, while protecting lower-earning pension savers. These changes are about fairness and consistency across the labour market.

Additionally, groups who are most likely to be undersaving for retirement, such as those on the national minimum wage and the UK’s 4.4 million self-employed workers are completely excluded from using salary sacrifice altogether. The cap we are introducing through this Bill will protect the majority of basic rate taxpayers using salary sacrifice and ensure that the cost of national insurance relief on pension salary sacrifice is put on a fiscally sustainable footing.

I now turn to Amendments 5 and 21 tabled by the noble Lord, Lord Leigh of Hurley, and the noble Baronesses, Lady Altmann and Lady Kramer, which seek to exempt salary sacrifice pension contributions over the £2,000 limit from being included in the definition of earnings used to calculate student loan repayments for employees. Student loan repayments are calculated using the same earnings base as class 1 national insurance contributions. As a result, salary sacrifice currently reduces both national insurance contributions and the earnings used to calculate student loan repayments. Any change in student loan repayments arising from this measure is a mechanical consequence of restoring those earnings to the national insurance contributions base. It is not a change to student loan policy itself; rather, it flows from levelling the playing field between those who are able to use salary sacrifice arrangements to reduce their earnings for national insurance contributions and those who are not. Of those employees making pension contributions through salary sacrifice, younger people are far more likely to be protected by the £2,000 cap than those above the age of 30. Some 76% of those in their 20s—

[Baroness Kramer (LD)]

Can I just get some clarification? The Minister is making me believe now that I must have misunderstood previous comments. Is he saying that he will not be, or there is not an anticipation he will be, bringing in legislation to remove that impact on student loan repayments? I had understood—and I could have been totally wrong, but I think others have understood as well—that that was what the Government intended.

[Lord Livermore (Lab)]

I am afraid I do not know what led the noble Baroness to believe that. That is not in any way my intention at this point.

As I was saying, 76% of those in their 20s who use salary sacrifice are protected by the cap, compared to half of those aged 30 and above. The Government do not believe that this Bill is the appropriate vehicle through which to amend the basis of student loan repayments—

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[Lord Freyberg (CB)]

My Lords, as mentioned in the previous group, the creative industries are defined by workers holding multiple short-term contracts with different employers across a single year. The central question that this group addresses, and which has been repeated several times today, is one that was put to the Minister in Committee and remains unanswered: is the £2,000 contributions limit £2,000 per person across all employments, or £2,000 per employment? The Minister was asked precisely this question in Committee by the noble Lord, Lord Mackinlay of Richborough, who has repeated it today. The Minister’s answer was:

“That intention will be set out in the regulations once we have fully consulted relevant employers”.—[Official Report, 24/2/26; col. GC 365.]


I have no doubt that that consultation will be thorough, but for workers planning their finances now, and employers designing payroll systems well before 2029, that leaves a gap that the Bill itself should fill. Amendments 6 and 22 would fill it: the limit would apply in relation to each employment.

Even with that resolved, a second problem remains. As we have heard from the noble Lords, Lord Fuller and Lord Ashcombe, when a worker moves between employers mid-year, no mechanism exists for tracking what has already been sacrificed or reporting it to the next employer. Amendments 36 and 39 would address this by making commencement conditional on the Government first publishing guidance that answers both those questions.

There is a further complication that has not been addressed by debates in either House. Many creative workers are engaged by the BBC under schedule D terms as self-employed contractors with no access to salary sacrifice. However, under the off-payroll rules that have applied to public sector bodies since 2017, the BBC must assess whether each such engagement is “employment in substance”. Where the BBC concludes that an engagement is employment in substance, the worker is deemed an employee for NIC purposes, yet they have no actual contract to vary. Salary sacrifice requires a varying employment contract; deemed employment, created by statute, is not a contract. The worker acquires the NIC liability of employment without access to its benefits. That same worker may also be genuinely self-employed with one employer and employed in an ordinary sense with another all in the same year, with no framework in the Bill to accommodate any of it.

These amendments would not change the policy or the 2029 commencement date. They would ensure that, when the Act comes into force, the people it affects know how much it applies to them. I will therefore be supporting all four amendments.

[Baroness Kramer (LD)]

My Lords, I will slightly anticipate the noble Baroness, Lady Rolfe, moving Amendments 9, 10, 24 and 25, which would require affirmative resolution for key elements of the Bill. Frankly, I do not think I have ever seen a Bill for which affirmative action was more required. In the other amendments, which have been brought forward so eloquently from across this House, we have some flavour of the extraordinary complexity.

I suspect that decision-makers at the top of the Government thought that this was something really simple, and that they were just going to put a cap on, with the rest being relatively easy to manage. However, the actual management of this is a complete nightmare. I cannot believe that a Bill that has been through the House of Commons already is on Report in the House of Lords, and yet we still do not know if the cap is going to apply to each employee or to each employment—which, to my mind, is two different Bills.

I completely agree with the noble Lord, Lord Leigh. I can see the nightmare of people wondering, “If I say this sentence, will I be caught by operational remuneration? Do I have to pretend, wink, or make sure I do not put anything down in an email?” We should not be putting people into situations where they have to try to work out how they handle this whole range of arrangements. The noble Lord, Lord Freyberg, knowing the creative industry so well, has thrown further complication into this. I very much suspect that the Government had absolutely no idea of the mare’s nest they were getting themselves involved with. I wish these issues had been teased out before this point.

The response brought forward by the noble Baroness, Lady Neville-Rolfe, of at least having affirmative resolution gives us some possibility of trying to scrutinise what has happened. This is an extraordinary situation. We do not know the core character of this Bill, so we will be dependent on those working through the affirmative resolutions to decide how on earth they will deal with what will turn out to be the form that eventually comes before us.

[Baroness Neville-Rolfe (Con)]

My Lords, I begin by thanking noble Lords with amendments in this group—my noble friends Lord Fuller, Lord Mackinlay and Lord Leigh and the noble Baroness, Lady Altmann—for their proposals, and for their forensic questions on the detail of the schemes and on any guidance that the Government might issue to minimise errors and problems.

There are numerous shortcomings in the Bill around operational detail and how everything will apply in practice. The reality is that we have very little clarity on how the Bill will work. It is designed to apply to a very narrow and limited set of employment and remunerative circumstances, and anyone who falls outside that definition has to wait for regulations, which will not be subject to the affirmative procedure.

We have no clarity on how the policy will apply to people working in numerous jobs. Is the cap per employment or per person? If it is per person, it will be very difficult to administer. We also need to know where responsibility for enforcement lies. There is no clarity about people with fluctuating remuneration: will they be penalised for saving during higher income periods because they hit the cap in some years and have no income to pay into pensions in others? What about anyone who has an unconventional pattern of remuneration for their job or jobs? How will it work for them? We have heard already that the arrangements for student loans are unclear, even after recent discussion, and we heard from my noble friend Lord Mackinlay about GDPR and from the noble Lord, Lord Freyberg, about the off-payroll rules. That is quite a lot of detail that has to be worked out.

My amendments in this group would help to deal with that by ensuring that all regulations would be subject to the affirmative resolution procedure, aside from those designed to increase the cap—that would be positive if it goes up, and you would not need to have an affirmative resolution because it would be beneficial. I am very grateful to the noble Baroness, Lady Kramer, and my noble friend Lord Ashcombe for their understanding and their vocal support for having this extra scrutiny.

When the regulations are developed, they will apply the cap to thousands of people and businesses who will be drawn into complications for the first time. My proposals would not impose a cost on the Exchequer or undermine what the Government are trying to do; they would simply ensure that, when the Treasury comes up with an answer to the questions that have been raised today, we will get a meaningful chance to debate and scrutinise the answers, as we are doing with the Bill at the moment. The Government really should have put the detail in the Bill but, in the absence of that, my amendments would ensure that we retain as much oversight as possible as the detail comes through. I can think of no reason why the Minister would not adopt the affirmative resolution if he cares about oversight, due process and the scrutiny of a policy which will affects millions of people. There are 7.7 million people using salary sacrifice and Amendment 9 should be an obvious amendment to support.

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Moved by

[Baroness Kramer]

8: Clause 1, page 2, line 14, at end insert—
“(6DA) Before making regulations under this section, the Secretary of State must lay before Parliament a statement confirming that the requirements in section 1(3) of the National Insurance Contributions (Employer Pensions Contributions) Act 2026 have been complied with.”Member's explanatory statement
This amendment, connected with another in the name of Baroness Kramer, creates a number of criteria by which the Secretary of State has to abide, before enacting the provisions in subsection (6A).

[Baroness Kramer (LD)]

My Lords, this group has just two amendments: Amendments 8 and 11. While the former is just a paver for the latter, it is apparently required for Amendment 11 to go into the Bill. I make it clear that I am speaking in order to get the contents of my speech on the record; I do not intend to press either amendment, even though I think they are important.

It has been clear from the debate so far that the Bill fails to provide Parliament with the information it needs to assess the legislation. I am very glad that we have now passed the language on affirmative resolution. I also thank the Minister for giving us clarity now on how the cap operates: it is per employment rather than per employee. That is hugely important clarification.

Throughout the debates on the Bill, there has been confusion over the numbers and consequences. To get greater clarification, my former colleague and pensions expert, Sir Steve Webb, submitted an FoI request to obtain the numbers that can explain the conclusions of the Budget Red Book of November 2025 and the OBR’s supplementary analysis of 2026 as it refers to the impact of the Bill. Sir Steve’s request was answered in part, but key requests were refused. Therefore, I am trying to capture those requests in Amendment 11.

The amendment seeks the estimates used by HMRC of the number of basic rate taxpayers using salary sacrifice arrangements above £2,000; a similar disclosure for higher and additional rate taxpayers; the expected number of employers expected to reduce their pension contributions in each group; and the contribution to the revenue numbers in the Red Book from increases in employers’ NICs—and, separately, employees’ NICs—as a consequence of the Bill. With that information, we can make a reasonable judgment of the impact of the Bill on workers, employers and pensions, and get a grip on the likelihood of the revenue outcomes forecast in the Red Book, which at present look exceedingly doubtful, as others have said.

Sir Steve was not denied the disclosures he requested because they do not exist—quite the opposite. HMRC said in its letter to him, “We can confirm that HMRC holds the information you have requested. The reason for the denial is to protect the integrity of the policy-making process and to prevent disclosures that would undermine this process”. Apparently, transparency

“needs to be weighed against the public interest in avoiding the disclosure of information which may inhibit the decision-making process”.

The information—noble Lords have heard me list it—is not commercially sensitive; it does not deal with state secrets. We are not looking for transcripts on advice but simply for basic numbers that any person would require to assess the Bill. I begin to think that, if the numbers were shown the light of day, the policy might collapse. I greatly fear that we really should be aware of them, and I want to be sure that no regulation can be put in place until Parliament has seen and scrutinised this information. I very much hope that the affirmative action resolution we passed a few moments ago will help us do that.

This is simply a statement to the Government: they need to give Parliament the information and numbers it needs to assess a piece of legislation properly. Scrutiny is meant to be our job, and we cannot scrutinise if the appropriate numbers are not provided. I beg to move.

[Baroness Altmann (Non-Afl)]

My Lords, I have added my name to the amendment tabled by the noble Baroness, Lady Kramer. It would be helpful if the Minister could explain a little more about what the Government believe the intention and the outcome of this policy will be. He did not answer my question earlier on why there is a rush to get this measure through Parliament so fast. Have the Government quantified the extra employer costs of the higher 15% national insurance contributions from the employer, and the 8% or 2% extra national insurance contribution per member, and quantified it in money terms and in what it will mean for pension provision and future pensioner poverty?

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The Office of Budget Responsibility published its economic and fiscal outlook, which provides the OBR’s independent scrutiny of the Government’s policy costings. The OBR published a supplementary forecast note, which provided additional information that it received prior to last year’s Budget to further increase the transparency of this measure. Taken together, these publications already provide an appropriate and comprehensive assessment of the distributional impacts.

[Baroness Kramer (LD)]

My Lords, we have important votes ahead of us, so I beg leave to withdraw.

Amendment 8 withdrawn.

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Moved by

[Baroness Kramer]

12: Clause 1, page 2, line 26, leave out “£2,000” and insert “£5,000”
Member's explanatory statement
This amendment changes the initial contributions limit to £5,000 in Great Britain.

[Baroness Kramer (LD)]

I wish to test the opinion of the House.

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Moved by

[Baroness Kramer]

26: Clause 2, page 3, line 39, leave out “£2,000” and insert “£5,000”
Member's explanatory statement
This amendment changes the initial contributions limit to £5,000 in Northern Ireland.

--- Later in debate ---

[Lord Londesborough (CB)]

My Lords, I support Amendment 31 in the name of the noble Baroness, Lady Neville-Rolfe, to which I have added my name. I also add my vocal support for Amendment 32 from the noble Baroness, Lady Kramer, which I should have added my name to but did not. Both amendments concern the impact on SMEs. I am more concerned about the “S” part of that acronym, because medium-sized businesses with payrolls of over 100 staff are a lot better equipped to deal with the provisions of the Bill. I heard the Minister saying that only 10% of this group apply for salary sacrifice, which is a glass-half-empty argument. It is precisely because of that that we should be very concerned about the 90% who are missing out entirely on salary sacrifice.

When we go back to Amendment 31 and look at the impact, the employment data this year for SMEs is utterly dire—on vacancies, payroll and employment, part-time and full-time. I will not go through all the data, but I remind your Lordships that only 10 days ago, the Federation of Small Businesses wrote a letter to the Chancellor of the Exchequer warning that one-third of its members are planning either to shut down their business this year or to reduce their headcount, and that should send a real chill down the spine. I simply do not believe that the Government understand what it is to develop and foster a thriving SME ecosphere, on which, at the bottom of the pyramid, our economic growth utterly depends. I therefore throw my support behind these two amendments.

[Baroness Kramer (LD)]

My Lords, Amendment 32 is in my name. I realise that Amendment 31 is a broader amendment, and I have no objection to it whatever. It was written in response to a particular issue identified by the Federation of Small Businesses, which is that small businesses that use salary sacrifice regard it as one of the perks they can offer, in a very competitive market, for particular skill sets. Churn is a major problem for small businesses, so to be able to keep people and keep them happy really matters. It is tough for a small business, particularly when it is looking for a person with highly desirable skills, to compete against big businesses, which can offer perks of many different kinds. They may not offer salary sacrifice to the same degree, but they can offer other kinds of perks and advantages.

I am very concerned about the competitive impact on small businesses. I strongly agree with the noble Lord, Lord Londesborough, that this group is the foundation of our economy and its condition currently leaves us worried. At a time of a big push for growth, many of the unicorns will fall into a sector where they are in a battle for skills against large existing companies. My Amendment 32 would review within 12 months the impact very specifically on SME recruitment and retention. I hope the Government will pay serious attention to this area.

[Lord Livermore (Lab)]

My Lords, Amendments 31, 32 and 33, tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, would require a review of the legislation’s impact on small and medium-sized enterprises, charities and social enterprises. As set out earlier, the Government agree on the importance of transparency, and a number of documents have already been published which set out the impact of this measure. As I said on Amendments 16 and 29, the Government fully recognise the importance of supporting small businesses and charities alike. In practice, the changes in the Bill primarily affect larger employers, who are significantly more likely to operate salary sacrifice arrangements and to have employees contributing above the £2,000 cap.

Charities and their donors benefit from a wide range of reliefs and exemptions across multiple taxes, including VAT, inheritance tax, stamp duties and gift aid. Ahead of the cap taking effect, the Government will continue to work closely with employers, payroll providers and other stakeholders, including representatives of the charity sector, to ensure that changes are implemented in a clear and proportionate way for organisations of all sizes that operate salary sacrifice arrangements. In light of the position I have set out, I hope that the noble Baronesses will feel able not to press their amendments.

--- Later in debate ---

[Lord Freyberg (CB)]

My Lords, I support Amendment 35 in the name of the noble Baroness, Lady Altmann, which would require the Government to commission an independent review within 12 months of passing the Act, covering a comprehensive range of impacts. Among the items it would have to consider are, explicitly, “workers with multiple jobs”, and

“workers who change jobs during any tax year and have made pension salary sacrificed contributions”.

Those two categories define the working life of a freelance creative. The Government’s answer throughout the Bill has been that these questions will be resolved in regulations. Amendment 35 would at a minimum ensure that Parliament sees independent evidence of whether that resolution has worked in practice.

Amendment 40, also in the name of the noble Baroness, Lady Altmann, would go further and make commencement conditional on a review of the Act’s practical feasibility. Given the complexity we have heard about and that I have described for workers with mixed employment statuses, including those engaged by the BBC under off-payroll rules while simultaneously working for other employers, that is not an excessive precaution. Therefore, I support both these amendments.

[Baroness Kramer (LD)]

My Lords, I shall be exceedingly brief. The amendment proposed by the noble Lord, Lord Ashcombe, is, quite frankly, genius. We have all had a struggle trying to get our hands on information that is scattered in so many different places, and I am fairly sure that if this was put with a secret ballot to civil servants they would all sign up because they struggle as well. It makes it very difficult when new policy comes through to try to work out what on earth the consequentials are, what numbers to look at, how to weigh these issues and how to understand distribution of impact, so I support his amendment.

This is such a complex Bill. When the instructions went down to put the Bill in place, I am sure there was absolutely no sense of the complexity that was going to be entangled in it. Amendment 38 in my name was triggered particularly by the OBR publication, again in response to an FoI, Costing of charging NICs on salary-sacrificed pension contributions, which was a supplemental analysis. The word “uncertainty” appeared in so many parts of it that we began to have a sense that no one could have huge confidence in the final numbers that were appearing, and it was very honest of the OBR to make it clear that there were vast uncertainties underpinning large parts of this work.



Very much like the noble Lord, Lord Leigh, I still do not think that we have bottomed out the problem with optional remuneration arrangements. It is easy to assume that we can distinguish between a negotiation where we are choosing between cash and a pension and having a negotiation that involves cash and a pension. But can we claim that the two are not related to each other, so that we do not get trapped by OpRa? There is a lot in here, and a review is the least we should do to make sure that we have a grip on these things and that Parliament gets to see it when it is still in a position to make some decisions.

[Lord Altrincham (Con)]

I thank the Minister for his usual courtesy in hosting the debate. The amendments in this group all underscore another substantial shortcoming in how the Bill has been approached: its effects and impacts have not been properly assessed in advance. I suspect that the Minister does not have the information on how the Bill will affect pensions saving adequacy, which I highlight in my Amendment 37, and how it will affect employer costs, pensions adequacy and workers’ take-home pay, which the noble Baroness, Lady Altmann, raises in her amendment.

These are serious questions. As was noted in Committee, if the Treasury had done better work in preparation for the Bill, it would already be able to give us the answers to the questions that these amendments raise. These are the questions that businesses, employers, savers and industry are asking. As my noble friend Lord Ashcombe highlighted, the information must be in an easily accessible format in a single place, because it will be relevant to more than just policymakers and parliamentarians: businesses and employers will be trying to understand what all this means for them, as well as employees saving for their pensions, who will be trying to understand how they could be affected.

My amendment raises the question of pensions adequacy. People are not saving enough for their pensions and the Government are worsening incentives to do so with the Bill. The Minister should consent to a review of this matter before the Bill comes into force. The Government must make sure that they know the facts, so that we can ensure that they do not inflict unintended harms. As a point of good governance, the Minister should accept this and the other amendments in this group.

National Insurance Contributions (Employer Pensions Contributions) Bill

Baroness Kramer Excerpts

3rd reading
Thursday 12th March 2026 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, as we said at Second Reading, in Committee and again on Report, this is a poorly conceived Bill, because it prioritises the hope of short-term tax gain over the far more important task of sustaining a system that encourages and rewards responsible pension saving. Throughout the Bill’s passage, we have sought to examine it line by line to see what the Government’s policy will actually mean in practice, and what has become clear is deeply troubling.

This measure risks deterring pension savings. It will hit those on lower and middle incomes, including some earning under £30,000 a year. It will impose yet more compliance, payroll and administrative burdens on business, particularly on small businesses and charities that are already under considerable strain. It will particularly penalise those who are repaying student loans.

Against that background, I am proud of the scrutiny that the House has brought to the Bill. Your Lordships have approached it with care, expertise and determination to improve it where we can. As a result, with unusual speed, good order and good humour, the House agreed five amendments last week which seek to limit some of the Bill’s most damaging consequences.

First, our Conservative amendments ensure that basic rate taxpayers, those on the lowest incomes, are protected from the NICs charge. If the Government insist that this policy is directed at higher earners, not those on modest incomes trying to save for their retirement, this should be explicit in the Bill.

Secondly, we proposed an exemption for small and medium-sized enterprises and small charities. These organisations are the backbone of our economy and our communities, and they should not be burdened with yet more payroll, compliance and administrative costs as a result of this policy. We have all seen the impact on them of last year’s £25 billion hit.

Thirdly, we proposed that most of the regulations under the Bill should be subject to the affirmative procedure. Given the uncertainty that surrounds how these provisions will apply, it is only right that Parliament has the opportunity to scrutinise those regulations properly.

Fourthly, my noble friend Lord Leigh of Hurley successfully secured an amendment to limit the impact of the Bill on those repaying student loans, who would be hardest hit by the measure.

Finally, the amendment by the noble Baroness, Lady Kramer, raised the cap to £5,000, helping to mitigate some of the worst impacts of the Bill on those least able to bear them.

In recognition of the seriousness of the issues raised by the Bill and the progress made here, I shall take a moment to thank a number of noble Lords for the diligence with which they have scrutinised it. I am particularly grateful to my noble friends Lord Leigh of Hurley, Lord Fuller, Lord Ashcombe and Lord Mackinlay of Richborough, and the noble Baroness, Lady Altmann. They have worked tirelessly, both with me and my noble friend Lord Altrincham, and their amendments have prompted important debates. I am also grateful to our Whips’ Office team, especially my adviser Oliver Bramley, for their unstinting and effective support, and I thank the noble Baroness, Lady Kramer, for the constructive way in which she has engaged with us during the course of the Bill. Hers has been a powerful voice in holding the Government to account.

More broadly, I thank other noble Lords across the House, including the noble Lords, Lord de Clifford, Lord Londesborough and Lord Freyberg, for their thoughtful contributions in scrutinising the legislation. Finally, it would be remiss of me not to thank the Minister for the way in which he has engaged with the House during the passage of the Bill. I am particularly grateful to him and his officials for their response to the letter I sent following Committee. It addressed a number of the questions raised during our debates and was both timely and informative.

I hope that, as the Bill proceeds, the Government will reflect carefully on the points raised and show a willingness to move on the issues that have united so many across this House.

[Baroness Kramer (LD)]

My Lords, this was a very short Bill but, frankly, I do not know how it got through the House of Commons and came to this House without clarity on the fundamental issue of whether we were talking about a cap that was per employee or per employment. I thank the noble Lord, Lord Livermore, for seeking the answers to that and making sure we were informed on Report. We were looking at two different Bills, not knowing which one we were working on, until we reached that point in the conversation, so I thank him.

I also join in saying that this was a collaborative effort, not in opposition to the Government but because we were of common mind across the Conservative Benches, my Benches and the Cross Benches—the noble Lords, Lord Londesborough, Lord de Clifford and Lord Freyberg, as the noble Baroness, Lady Neville-Rolfe, mentioned, all played a crucial role in this. I particularly congratulate my Benches on taking a vow of omertà not to speak on many occasions on the Bill so that we moved it rapidly through the House. I think the whole House was grateful that, on Thursday, when we finally came to vote, we were done in less than two hours rather than delaying everyone from departing on a Thursday. I thank my team very much for their discipline. I also thank Ulysse Abbate in our Whips’ office, who is new to this kind of work, but my goodness is he good at content and co-ordination.

This was a good example of people, having realised they are taking the same position, working together to make sure that it is effective. I very much hope that the Commons will appreciate the significance of the amendments passed to the Bill. Of all the Bills I have ever seen, this contains so many unintended consequences that, even if you believed in the fundamentals behind it, you would need to make substantial change for it to be in any way workable and not ending up targeting unintended groups, such as those on basic incomes. It would be devastating for people repaying student loans, which has to be fixed, and very difficult for SMEs. We chose different routes to try to make those changes and ended up with a very solid group of amendments. I thank the House for co-operating on this issue.

[Lord Livermore (Lab)]

My Lords, I am very grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer. I beg to move.