The House of Lords has made five amendments to the Government’s Pensions Bill outlining pension salary sacrifice changes, including voting to increas the annual cap on employee contributions for full National Insurance relief from £2,000 to £5,000.
Ministers also confirmed during debates in the House of Lords that the proposed cap would apply per employment, rather than per individual.
Any sacrificed contribution above the cap will also not be counted as income when working out Student Loan repayments.
The National Insurance Contributions (Employer Pensions Contributions) Bill will now return to the House of Commons, which may make further changes in an attempt to remove these amendments.
Chancellor Rachel Reeves announced in the last Budget plans to restrict salary sacrificed annual contributions to £2,000 from April 2029.
The move has caused a furore with many pension professionals attacking the move. The Treasury believes the current salary sacrifice rules, which allow almost unlimited salary sacrifice, are too generous and encourage people to avoid paying tax and National Insurance on earnings by moving salary into pensions, depriving the Treasury of revenue. Salary sacrifice has proved increasingly popular in recent years with some experts estimating one in three workers are using it, particularly the better paid.
The Pensions Bill will move between the two Houses, until both agree, with details of the policy easily changing again until they become live in 2029.
Charlene Young, senior pensions and savings expert at AJ Bell, said: “When the cap was announced, the long lead time caused many to believe that the 2029 changes would never see the light of day. Some signposted the fact that the next general election must be held on or before 15 August 2029, and others pointed to the current administration’s tendency to U-turn on contentious policies.
“The government has rushed through the draft rules well ahead of time to signal its intention to get them into law, and perhaps because they were aware there would be plenty of back and forth between the two Houses.”
Research from Barnett Waddingham has shown that two thirds of employees are not aware of the planned salary sacrifice restrictions, despite more than half of those surveyed currently using salary sacrifice.
The Government’s plans to cap salary sacrifice pension contributions are being rushed and risk damaging UK pension saving, pension campaigner Baroness Ros Altmann warned earlier this month. She has called for the Bill to be put on hold.
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.