The Government’s plans to cap salary sacrifice pension contributions are being rushed and risk damaging UK pension saving, pension campaigner Baroness Ros Altmann has warned.
She has called for the National Insurance Contributions (Employer Pension Contributions) Bill to limit salary sacrifice pension contributions to £2,000 a year to be put on hold pending further consideration.
She said: “This was announced in last November’s Budget, but is not due to begin until 2029. So why is this legislation being rushed through Parliament in just a few weeks, as if there is a huge sense of urgency? It has been put to Parliament prematurely.
“The measures are clearly not properly thought through, and we have raised absolutely vital questions which remain unanswered. The measures could have damaging consequences and the Bill should be put on hold until the Government gives us a better idea of how they will operate”
The Lords Committee has also expressed fears that the legislation still has many unanswered questions.
The proposed cap of salary sacrifice on pensions was announced by Chancellor Rachel Reeves in her Autumn Budget, during which she claimed it would save the Government around £4.7bn. The cap is expected to come into force in April 2029.
Baroness Altmann added: “Even in terms of high level policy, it seems many of the issues have not been thought through. A long list of potential banana skins and uncertainties has been laid out in the Committee discussions, with our questions about important practical issues suggesting vital measures have not even been recognised, let alone resolved.”
Questions that she has called on the Government to answer include: will employers be able to increase pension contributions safely? Who will keep a tally of contributions for those with multiple jobs or who change jobs part-way through the tax year? How will it impact student loan costs? Who is responsible for reporting to HMRC?
She added that the Bill goes against stated policy objectives or helping workers achieve better pension outcomes.
She said: “This Bill highlights major inconsistencies in current pension policy, particularly in the private sector. Stated policy objectives of helping worker achieve better pension outcomes and encouraging more pension fund investment in UK assets, will actually be undermined by these reforms.
“Higher pensions for ordinary workers and more pension support for long-term UK growth, require higher contributions. We even have a new Pension Commission examining ways to boost pension adequacy. Surely the last thing we should do is put workers or their employer off increasing pension contributions - or drive lower contributions. Yet that will be the result of this policy.”
The Government says the lost revenue from salary sacrifice runs into billions and is spiralling upwards. It also says there are already other incentives to encourage pension saving, including tax relief.
The SPP has written to MPs providing an explanatory note on the impact cutting salary sacrifice will have on, “hundreds of thousands of businesses and millions of workers.”