Baroness Kramer (LD)

My Lords, this is the group of amendments on which I have been the most focused. I will not repeat my Second Reading speech, in which I talked about the importance of growing pension savings to fuel the growth agenda, but the Government must realise that this policy just does not align with that. However, I hope that the Government are beginning to understand that life today is long and it is not easy to put aside enough from the working years to achieve a decent retirement without depending on the state. According to the Resolution Foundation, changes made under the Bill will hit at least half of those who use salary sacrifice, affecting a large number and a wide range of households. Different noble Lords, as we see in the amendments here, have proposed different increases to the contributions limit. Amendments 7, 10, 11, 20, 22 and 23 are in my name, and I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord Londesborough, for signing some of them. The core of my amendments would increase the contributions limit from £2,000 to £5,000, preferably with a further annual increase linked to RPI. I confess that there is not a lot of science behind my choice of £5,000, but running it past people who deal with pensions, I began to think I had hit a sweet spot with that figure. The response was that it would support people making the rather difficult choice of what to do with their money and provide a little more of an incentive to save in a pension rather than to spend. As part of this process, my colleagues in the other place were able to obtain some research from the Commons Library, using PolicyEngine and its interactive dashboard. That work is not definitive but it provides a useful picture of the distributional effects of raising the contribution limit. An uplift of £5,000 would give the greatest gains to the two top income deciles—we would all expect that. But just a shave behind those two deciles, the next highest gainers are the second decile, which is not, I expect, the result that the Government would have predicted. This group would have within it a cohort of young people, probably in their early to mid-20s, perhaps one pay rise into their careers, still willing to live in shared accommodation and to live quite frugally, and not yet trying to pay off student loans, get a mortgage or support children. Surely this is the group that any Government should target to get into saving for a pension in a big way. Early investment enables a pension pot to grow, but it is a narrow window. As people move into the age of families and mortgages, they cut or even stop pension savings, and women are even more affected if they reduce work to care for children. Only later in life do people return to significant savings and by then it is very late in the day. Frankly, we should make sure that they also have strong incentives to save at this point in their lives to avoid sharp drops in living standards in old age. I think the Government have looked at earners as if they belong to fixed blocks: low earners, middle earners and high earners. In reality, most people’s profiles as earners and savers change as they go through life, and the incentives therefore have to be shaped to maximise and to meet that profile. Some of my amendments would increase the £5,000 contribution limit annually by RPI. The noble Baroness, Lady Neville-Rolfe, discussed increasing the £2,000 limit by CPI. I know that the noble Baroness, Lady Altmann, considers this an additional complication but, frankly, we have to tackle this issue of frozen thresholds, which in eras of inflation have just such a negative impact.