Contribution
My Lords, I first need to declare my interests as a non-executive director of a pensions administration company and as a board adviser to an auto-enrolment master trust. This is a very large group of amendments, and I thank the noble Baroness, Lady Neville-Rolfe, for her excellent introduction. The 15 amendments in this group cover a whole range of different issues, and I will try to be as brief as possible.
I start with Amendment 1, to which I have added my name, which seeks to tease out the Government’s actual policy on pension incentives. As the Minister and other noble Lords have said, around one-quarter of basic rate taxpayers whose employers are using salary sacrifice will be impacted. They will have lower take-home pay and/or lower pension contributions and, clearly, less incentive to pay more into a pension. Therefore, they have more risk of being poor in later life.
We still do not have an explanation for this limit being chosen, and the idea of limiting it to higher rate taxpayers makes enormous sense from the point of view of pension policy. Even a small number of people who are earning less than £30,000 will be caught by this. We have no explanation. I hope that the Minister might be able to help us understand where the £2,000 figure came from and why it is acceptable to hit the pensions and take-home pay of these lower earners.
Any proposal that we have heard over the years—and there have been many—for reforming the incentives for pensions have tried to suggest making the incentives for lower earners better. This Bill does the opposite. With a progressive tax system, using tax relief as an incentive mechanism will always give more generous relief to higher earners than lower earners who are on lower tax. At the moment, the availability of salary sacrifice helps to even that up a bit. If somebody is on a 20% tax rate, for every £4 they put into a pension, the basic rate tax relief gives them an extra £1. That is a 25% uplift. For a 40% taxpayer, for every £3 they put into a pension, tax relief gives them an extra £2. That is a 66% uplift. If you add in the 8% national insurance relief on top of the 20% basic tax relief, these lower or moderate earners will get a 38% uplift. If we take that away, they are back to 25%. I cannot explain how that is consistent with the Government’s aim of improving pension outcomes and helping lower earners or ordinary workers to have a better future. They will have lower take-home pay and/or lower pension contributions as a result of this policy. I understand that national insurance relief has always been a bit of an anomaly, but it is there, so taking it away makes things worse. Higher earners are only losing 2%. I hope that the Minister will look favourably on this amendment, but if the noble Baroness chooses to test the opinion of the House, I will support her.
Amendment 5 in the name of the noble Lord, Lord Leigh, to which I have also added my name, talks about the student loan problem and seeks to find a way to exempt students who are contributing more than £2,000 from higher repayments or lower take-home pay as a result of this policy. I would be grateful if the Minister could help us understand the impact on someone with a student loan who is paying more than £2,000 and will say what the Government’s proposals for mitigating are. If we do not have any such proposals, I hope the House will support the noble Lord’s amendment.
Amendment 12 and related Amendment 26 in the name of the noble Baroness, Lady Kramer, seek to address this problem in a different way by increasing the £2,000 limit to £5,000. These are both arbitrary numbers. There is no specific justification in the modelling of what pension contributions are in salary sacrifice schemes. My Amendment 13 was trying to raise the limit to £10,000, which would mean catching even fewer people but more higher earners. I accept that there is not enough support in the House for going as far as £10,000, which is the minimum contribution that the highest earners can make under the annual limit, but I would certainly support a change to £5,000.
On Amendment 27, which has just been spoken to by the noble Lord, Lord de Clifford, I understand the logic of trying to tie this to the national insurance upper earnings limit. I would support it, but I can see that the support is not widespread. In any case, adding this would make the whole administration system much more difficult to understand and complex. At least a round number of £5,000 is something that people can aim at and see whether they are over it.
The noble Lord, Lord Leigh, mentioned employers taking evasive action to avoid this before 2029. Will the Minister say what is the rush? Why, just a few weeks after announcing this, do we have this primary legislation which raises huge numbers of questions and poses such significant risks to the pension system? What evasive action can employers take? The most likely is that they will significantly reduce their pension contributions if they are not already at the minimum, or just stop salary sacrifice altogether because the costs of changing this system from the current salary sacrifice payroll provision and introducing new provisions will be significant.
This policy goes against everything the Government have rightly said they would like to achieve with their pension reforms. It makes the position of lower earners worse, it makes the pensions of lower earners worse, and it is likely to make overall pension provision worse throughout the economy. I hope that the Government might think again on some of these issues.