National Insurance Contributions (Employer Pensions Contributions) Bill

Lord de Clifford Excerpts

Tuesday 24th February 2026 Grand Committee

[Lord de Clifford (CB)]

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

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

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

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

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

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

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

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

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

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

[Baroness Altmann (Non-Afl)]

I will speak in support of my Amendment 9, as well as the amendments to which I have added my name, Amendments 7 and 20.

I have proposed my amendment so that—if we are to go through this exercise, which I hope we will not—no basic rate taxpayers would be likely to be caught by the measure. If the minimum contribution on which they can have national insurance relief is £10,000 a year, they are unlikely to be caught, unless they get a very large bonus. I hope that we will be able to deal with some of these issues.

The reason for suggesting a £10,000 per year pension contribution is based on the minimum amount that the very top earners are able to contribute to pensions. Under the tapered annual allowance, for example, £10,000 seems considered to be, if you like, an acceptable level of pension that is not egregious in some way.

My preference would be that, if we are to go down the route of capping the national insurance reliefs available to anyone who is paying into a pension, we do that in the way that I have just suggested, which is the same as one does with tax relief. If you pay in more than £60,000 a year, you do not get any extra tax relief; but if you pay in, for example, more than £10,000 a year, you do not get any national insurance relief on the amounts on top of that. That would be so much simpler.

I stress to the Committee that I believe that the Government and the Minister have not realised the complexity—the sheer scale of the administrative tasks—that will be involved if the Bill proceeds as it is. I liked the idea suggested by my noble friend Lord Leigh to put this on hold and do the work that we are trying to get the Government to do straight after the Bill passes before we finish and finalise the legislation, so that we have a better idea of what we are doing.

I also have a lot of sympathy with the approach that the noble Lord, Lord de Clifford, has outlined. We all seem to be trying to make the Bill operate in practice in a rather less difficult, complicated and costly administrative manner. The amendments tabled by the noble Baroness, Lady Kramer, to which I added my name, on £5,000 are just another way of trying to square this circle. I look forward to hearing the Minister’s thoughts.

I must confess that the idea of inflation linking this limit, if we were to get it, each year would probably just add to the complexity of an already incredibly complex set of changes that we are thinking of making to the Bill. We would not know, from one year to the next, what the new limit will be, because it will not be £2,000 or £10,000—I hope we will not end up there. I hope the Minister understands the spirit in which I am trying to suggest the £10,000 figure and the people I am trying to help: the basic rate taxpayers. I really do fear that they will have a much worse pension outcome if this goes ahead.

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[Lord Ashcombe (Con)]

My Lords, I support the amendments in this group in the names of my noble friend Lady Neville-Rolfe, the noble Baroness, Lady Kramer, and others—in fact, quite frankly, most of the noble Lords currently in Committee.

These amendments speak directly to the reality facing SMEs and charities, which are organisations that form the backbone of our economy and social fabric. These employers have already endured a succession of rising costs—I have a few to add, so I will go through them again—such as higher national insurance, changes to inheritance tax, increases in the minimum wage, new obligations under the Employment Rights Act, business rate adjustments and the continuing shock of energy prices. A handful of sectors have received modest relief but, for most, these pressures fall straight to the bottom line. The cumulative effect is profound.

Charities are no better placed. They are all under extraordinary strain, yet they provide services that the state itself cannot easily replace. How do these organisations continue to operate if further costs are piled on them? My noble friend mentioned the outrageously appalling numbers.

There is even more concern when donors are typically being more hesitant, due to the overall sentiment in the country to donate. This is not merely short-sighted; it risks creating far greater financial and social pressures for future Governments. The Bill adds yet another cost: it raises employment expenses at a time when many organisations are already stretched to breaking point. It undermines their ability to offer competitive pension packages, often one of the few tools available to attract and retain skilled staff. There is a high chance that these businesses will simply withdraw salary sacrifice schemes and may simply withdraw themselves from the market.

Implementation is scheduled for 2029, which gives these operations time to review the situation, which is, as we have heard, very complex. Many SMEs do not have HR teams to manage new thresholds, payroll changes or contract revisions. They will be forced to pay for external support that they can scarcely afford in the current climate. This is not a policy that encourages growth; it is one that diverts time, money and energy away from the very activities that drive economic vitality. This is on the basis of companies that employ on an annual basis, but what happens if they take on shift and seasonal workers who may have more than one occupation, which we have already heard quite a lot about? The complexity merely increases ever more, as does the expense, if the company is prepared to continue with salary sacrifice schemes at all.

[Lord de Clifford (CB)]

I have had the privilege of putting my name to Amendment 27 in the name of the noble Baroness, Lady Kramer; the noble Baroness, Lady Altmann, has added her name to it as well.

I own an SME business, and this Government’s changes to NIC have significantly affected it. Of the 8% rise in salary costs to my business in the past 12 months, 25% of that figure—or 2%—was the NIC change. The changes proposed would increase that further.

This amendment seeks a review of the effect of the change on SME businesses and on employment rates within SMEs. SMEs are the bedrock of employment in this country, as was covered by my noble friend Lord Londsborough. The addition of this pre-profit tax does nothing to encourage growth, investment or employment. This review is very much welcome to identify any changes within SME businesses, to ensure that we remain healthy and can create opportunities for growth and jobs for all generations, especially the young.

[Lord Mackinlay of Richborough (Con)]

My Lords, I normally do not support measures that carve out certain sectors from others in the normal weft and weave of enterprises in the country, but I support this one, particularly Amendments 12 and 24 which seek to carve out small and medium-sized companies under the Companies Act 2006 and charities and social enterprises. I think a tipping point has now been reached, particularly on the back of the Employment Rights Act, increased national insurance and higher minimum wages, particularly those applying to younger employees.

We are seeing that already with the highest rate of NEETs—younger people out of work—than I think we have ever seen before: 700,000 at present. What always happens under a Labour Government is certainly happening. It usually happens over a longer period—over the full five years of a Labour Administration—but it is happening very quickly within their first 18 months. Levels of unemployment are higher than we have seen. We now have higher rates of youth unemployment than the EU average. In days of old, we used to point our fingers over the channel, laugh at the level of youth unemployment over there and wondered how on earth they got it so wrong—but no more. The finger-pointing is now coming from that side of the channel to us, wondering how we could be so stupid so quickly. I think that tipping point has been reached.

A reality for small and medium-sized enterprises, particularly the smaller ones, is that they do not run their own payrolls; they contract out their payroll requirements to payroll bureaus. It is very commonplace. I would say the tipping point could be even up to 50 employees, where the company will pay a bureau to do all the complicated stuff—processing the real-time information, taking in the coding notices, working out the statutory sick pay—that comes with running a payroll. Smaller and medium sized enterprises want to get on with the business they do. Whatever the business might be—whether a retailer, a pub, a printing company or whatever—it does not particularly want to add to the administrative burden internally and deal with the cost of it, so they tend to outsource it.

My thoughts on these amendments might be a little different if we knew—and I will say it for a third time today—whether this £2,000 threshold measure applied for the employee across all their employments or across each employment. If it does apply to the employee across multiple employments, then the payroll bureau way of doing things becomes extremely complex. It will have an additional burden to speak to the payroll bureau and the tax office for the details of the employee’s other employments. Until we have an understanding of what that really means within this legislation, I think we are a little bit out at sea.

However, there are other things going on in the employment market at the moment. We have one sector that is growing quite well in terms of the employment numbers and the number of new employees: the public sector. It is about the only sector that is growing, and of course it does not really do much for the GDP of the nation because every penny has to come on the back of proper profits and taxes that are derived from the private sector.

As someone who was once involved in the SME sector, I know that there is often a competition going on between a potential employment available to a good and skilled potential employee in the market. They have the choice of going to the public sector, which gives six months of paid illness leave and another six months of half pay—there are not too many questions asked. There is lots of working from home and lots of other lovely benefits—such as an accumulating index-linked pension—which few in the private sector can match anymore. The days of the final salary pension really only exist in one place, and that is now in the public sector. Therefore, the SME sector has a struggle to recruit, especially when the market is good.

A skilled employee, when given the choice of working in the public sector with all those benefits or working in the private sector—where the pension, sickness benefits and holiday benefits are not so good, and the requirement to worked damned hard is different in expectation—will choose the public sector. There is a conflict going on in employment. The one thing that small businesses might be able to offer, however, is a better pension provision, and these measures will stop that. It is the one thing they can use to attract a good employee. To deprive the small business sector, charities and those in social enterprises of the opportunity to offer a little bit of gold plate in the employment offer to a very good employee is a very backward step.

For perhaps one of the first times, I actually support these amendments because employment rights and running payrolls have become so complex, and there are more and more burdens for businesses, which are negatively impacting them. A carve-out for smaller enterprises under the measures proposed by Amendments 12 and 24 are to be supported because the backs of small and medium-sized enterprises are breaking, and they need support that, I am afraid, this legislation does not provide them.

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[Baroness Altmann (Non-Afl)]

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

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

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

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

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

[Lord de Clifford (CB)]

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

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

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

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

[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.

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[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.

[Lord Londesborough (CB)]

I will very briefly add one question about the OBR forecast. I think that the noble Baroness, Lady Kramer, said at Second Reading that she found the timing “weird”. I certainly find it extraordinary that we have a five-year forecast of which the first three years are irrelevant—they are zero—and then we have a 48% fall in the second year. This begs the question: where are the forecasts for years three, four and five? If we are following this trend, we have a fireworks display. As the noble Lord, Lord Altrinchan, said, the Government should not be indulging in short-term fiscal levers. Where are the forecasts for those years? These measures do not actually come into effect until the financial year 2030.