Labour is facing mounting calls to delay a bill that will cap salary sacrifice pension contributions, with a former minister amongst those warning the legislation is being “rushed” through Parliament.
Salary sacrifice allows employees to give up part of their salary in exchange for pension payments – and benefit from paying less national insurance (NI) – but under proposed rules, only the first £2,000 of contributions made through salary sacrifice each year would benefit from the relief.
Legislation to implement the change from 2029 is passing through the House of Lords now, but critics say ministers should pause the bill until they can provide more information on the policy detail and how it will work.
Former pensions minister Ros Altmann is among those claiming the National Insurance Contributions (Employer Pension Contributions) Bill is “clearly not properly thought through”.
She says if it passes in its current form, it could have damaging consequences, and she says it should be on hold until the Government “gives us a better idea of how they will operate”.
Around 7.7 million people divert some of their wages into their pension under so-called salary sacrifice schemes at the moment, according to the Government’s own impact assessment.
According to the Government’s analysis, around 3.3 million of the 7.7 million workers benefiting from salary sacrifice currently save more than this £2,000 limit.
The cap could cost these employees an average additional tax bill of £84 per year, according to the impact assessment.
Some experts have suggested that the policy could have more wide-ranging effects than the Government is suggesting.
Altmann said that there were multiple “gaping holes” in the plan and called for a delay to the legislation until questions were answered.
Example questions include what will happen if someone is to change jobs part-way through a tax year, what happens to people with multiple jobs and who is responsible for compliance with the rules, she added.
Though lawmakers will be able to amend the legislation as it passes through Parliament, Altmann said it will not be in a fit state even if amendments are made, and needs thorough redrafting.
“The reason for just putting all this on hold is that even with amendments, these questions will not be resolved, and as the measure is not even due to start till 2029, what is the rush? It is not sensible to attempt something so fraught with administrative complexity, for which the Government has no answers yet, in just a few weeks. There is no need to be so hasty,” she said.
Other tax experts also said the Government should delay the legislation.
Jason Hollands, managing director of Evelyn Partners, said he too would welcome a decision to put this on hold to allow a “proper assessment”.
Speaking to The i Paper, he said: “The proposed curtailment of salary sacrifice is a barely disguised national insurance hike, rather than a genuine reform of pensions.
“There are many unanswered questions and complexities to consider. Rushed legislation is rarely good legislation – especially when the proposed implementation date is three years away.”
Sir Steve Webb, partner at LCP and former pensions minister, said the Government had failed to be transparent about the scale of the impact the policy could have on employers and workers.
He said: “It really is time for the Government to come clean on the major impact this policy will have on workplaces up and down Britain.
Webb explained that the Government’s own figures assume that employers will squeeze pay increases, make workplace pensions less generous or give up on salary sacrifice altogether if the plans go ahead.
All of these changes will hit a much broader range of employees than those who contribute over £2,000.
He added: “It is shocking that this measure is well through its parliamentary process and yet ministers are refusing to reveal the full impact of the changes.”
Altmann said the Lords Committee has pointed out that the legislation is “premature, ill-conceived and full of unanswered questions”.
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She continued: “It’s time to press the pause button and think carefully about how to reform pensions, without damaging outcomes for middle earners. It’s not too late to think again.”
A HM Treasury spokesperson said: “We are progressing the National Insurance Contributions Bill to provide certainty to employers and employees, and the reforms will not take effect until 2029.
“These reforms protect 95 per cent of workers earning under £30,000 who use salary sacrifice and simply bring salary sacrifice above £2,000 into line with other pension contributions – with only those making the very largest pension contributions affected.”
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