National Insurance Contributions (Employer Pensions Contributions) Bill

I turn to amendments which make commencement of the Act contingent on the publication of economic and behavioural impact assessments on individuals repaying student loans. It is right that we focus on outcomes for younger generations, particularly given that, over the past 14 years, they have seen their fees trebled, interest rates increased and maintenance grants scrapped. Importantly, though, the £2,000 cap means that young graduates are broadly unaffected. In fact, the £2,000 cap means that 90% of graduates under the age of 30 repaying student loans who are saving into their pension are completely unaffected by this measure. Both this and the prior set of amendments make a broader point about pension savings and pensions adequacy for these populations. This is a real challenge for our pensions system, but the data is entirely clear that today’s salary sacrifice is not the answer. As discussed at earlier stages, salary sacrifice existed in the 2000s and early 2010s, yet there were falls in private sector pension saving during that period.

There has been a clear consensus throughout our debates that the key factor that has led to an increase in saving in recent years has been automatic enrolment. As a result, more than 22 million workers across the UK are now saving each month.

Although we all share a commitment to improving pensions adequacy, many groups at highest risk of undersaving, including the self-employed, lower 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 undersaving 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 which the Government currently provide on pensions each year will be entirely unaffected by these changes.

I turn to the amendments seeking an impact assessment on small and medium-sized enterprises and charities. The Government agree on the importance of supporting small and medium-sized businesses and charities, but small businesses are much less likely to use salary sacrifice than larger businesses. Furthermore, the £2,000 cap means that 90% of employees in SMEs making pension contributions through salary sacrifice will be entirely unaffected. Indeed, the largest benefits from uncapped salary sacrifice accrue to larger businesses, not smaller ones. In practice, the changes in the Bill will help level the playing field between small businesses and their larger competitors.

The amendment also requires assessment of the expected impact on business and compliance costs. This analysis is already set out in the tax information and impact note. As set out in that document, the administration of this measure is estimated to result in a one-off cost of £75 and an ongoing £99 per business per year for those using salary sacrifice.

The Government recognise that these changes will impact those currently using salary sacrifice. That is why we chose a long lead-in time of April 2029 to give employers maximum time to prepare for these changes. As mentioned previously, HMRC is engaging with employers, payroll providers and software developers to deliver the changes in the most suitable way with the fewest administrative burdens for businesses of all sizes that use salary sacrifice. For the reasons I have set out, I respectfully ask that the noble Baroness does not press her Motions. I beg to move.

Motion A1 (as an amendment to Motion A)

Secondly, for those repaying student loans, the interaction between salary sacrifice, pension contributions and student loan repayments is not straightforward. There is a real risk here that some individuals repaying student loans could face higher effective deductions from their income or altered incentives around saving for retirement. Our amendments would ensure that the Government properly assess the impact of these interactions.

Thirdly and finally, small and medium-sized enterprises and charities are the backbone of our economy and our communities. They operate with limited margins and limited administrative capacity. Changes to employment costs, compliance requirements or remuneration structures can have tangible effects on hiring, wages and growth.

The Government must be able to answer these questions. By how much will this Bill increase their costs? Will it change employment practices? Will it have an impact on wage growth or the critical area of job creation? This Bill would change how people save, how employers structure pay, and how organisations make decisions.

Our amendments would simply require the Government to set out clearly and transparently what the effects are expected to be. They would offer the Government a constructive way forward and would seem to get round the problem of financial privilege. In responding, it would be helpful if the Minister could explain more clearly precisely why these provisions do not come into force until 2029. It looks as if this matter is regarded by the Government not as a serious measure but as a nasty present to their successors.

These are fair and balanced reforms. They give employers many years to prepare and they ensure that both our pensions system and the public finances are kept on a sustainable footing. The £2,000 cap protects lower-earning employees who use salary sacrifice to make pension contributions and preserves the tax benefit of salary sacrifice for all employees on the first £2,000 of their contributions.

Importantly, these changes leave the tax reliefs on regular pension contributions completely untouched. These reliefs are worth £70 billion a year and are available to all workers and employers, not just those who use salary sacrifice. For the reasons that I have set out, I respectfully ask the noble Baroness, Lady Neville-Rolfe, not to press her Motions. I beg to move.