Peers in the House of Lords have voted to raise the government’s proposed cap on salary sacrifice pension contributions to £5,000 as the controversial legislation makes its way through parliament.
An amendment tabled by Baroness Susan Kramer, a Liberal Democrat peer, has more than doubled the government’s initial £2,000 annual cap for salary sacrifice, above which National Insurance contributions are payable.
The legislation is not due to be enacted until 2029, but the government has sought to accelerate the bill introducing the rules. Its third reading in the House of Lords begins on Thursday (12 March).
Addressing peers last week, Baroness Kramer said raising the cap to £5,000 “would strongly benefit younger people and… low earners”.
She added: “Many have, very responsibly, with the nudge that is given by this tax relief, been encouraged to start seriously saving for pensions, well in excess of that £2,000 benchmark that the government propose.
“As these people move on in their lives and acquire children and mortgages, their pension savings drop. Those very early savings that then have a chance to accrue over a working lifetime are very significant in the end result to the quality of pension that they receive.
“That is why we took an approach that we thought would, in a very simple way, enable this group of people to continue with that incredibly positive behaviour.”
The amendment was approved by a vote, with 194 peers in favour and 140 against. It was one of five amendments to the bill that were made despite opposition from the government. Another grants exemptions from the cap to charities and small and medium-sized enterprises.
After its third reading, the bill – the National Insurance Contributions (Employer Pensions Contributions) Bill – will return to the House of Commons for its final debate before receiving Royal Assent, if MPs in the Commons agree to the amendments.
