Pension 'Cap' Date Set: 850,000 Workers Affected
The government has announced a new pension cap of £2,000 per year, exempt from national insurance contributions, which will come into effect in April 2029. This move has sparked concern among the Conservatives, who argue that it will disproportionately impact lower-paid workers and those with student loans. The bill, which passed through the Commons with a majority of 122, will affect approximately 850,000 basic rate taxpayers who use pension salary sacrifice.
The National Insurance Contributions (Employer Pensions Contributions) Bill will impact salary sacrifice pension contributions exceeding an annual £2,000 threshold. Treasury minister Torsten Bell described the changes as 'inevitable', citing projected costs tripling between 2017 and the end of the decade. However, the Conservatives have labeled it a 'cynical measure' to boost savings in an election year.
Shadow treasury minister Mark Garnier criticized the timing, suggesting it was designed to maximize revenue in 2029-30, the year that counts for the Chancellor's fiscal rules. He argued that the change will disproportionately affect basic rate taxpayers, who pay 8% NIC on contributions over £2,000, compared to 2% for higher earners. Garnier also highlighted the strain on those with student loans, who will face an extra 9% student loan deduction.
The Tories have called for the government to exempt basic rate taxpayers from the £2,000 annual cap. The bill will now advance to the House of Lords, where it is expected to be categorized as a money bill, preventing the upper house from blocking or modifying it. The Liberal Democrats have also called for the government to calculate and publish the projected lifetime value of an individual's pension before and after the bill's changes take effect.
