National Insurance Contributions (Employer Pensions Contributions) Bill

Baroness Kramer Excerpts

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.