The House of Commons has resoundingly rejected amendments to the National Insurance Contributions Bill that would have raised the proposed salary sacrifice cap from £2,000 to £5,000 and introduced exemptions.
In a debate yesterday, the government used its strong majority to vote down the changes, despite support from Conservative and Liberal Democrat MPs for retaining them.
Earlier this month, peers in the House of Lords backed amendments raising the cap and exempting low earners, small business and charities – groups that opponents of the cap say will be unfairly impacted by the government’s plan.
However, pensions minister Torsten Bell reiterated his argument that other tax incentives were more important as they were more inclusive, and pointed out that the annual cost of salary sacrifice for pension contributions was equivalent to the annual cost of the Royal Air Force.
“On this basis, the status quo is indefensible,” the minister stated. “Change was inevitable, but we have chosen to take a pragmatic approach, with no change until 2029, and a £2,000 cap to allow pension contributions via salary sacrifice to continue.”
Mark Garnier, the shadow parliamentary under secretary for work and pensions, accused the government of having “singled out pensions” and “attacking one of the most important things that people should be saving towards”.
As well as raising costs for businesses and affecting low earners and people paying off student loans, Garnier argued that the salary sacrifice cap would “harm pensions adequacy and force more people to rely on the state, pushing more costs on to the next generation”.
Liberal Democrat spokesperson Charlie Maynard cited the Office for Budget Responsibility’s (OBR) recent research that warned of significant impacts on people the government has said are protected by the cap. The OBR said the cap would likely cause some employers to rethink their use of salary sacrifice, potentially removing it even for those below the cap.
Bell highlighted that efforts to reduce pension gaps should focus on the “45% of working-age adults who are currently saving nothing”, including groups such as low earners and the self-employed who do not benefit from salary sacrifice. “The answer to that is the work of the Pensions Commission, which I hope will continue to operate on a cross-party basis,” the minister said.
