The National Insurance Contributions (Employer Pensions Contributions) Bill passed its third reading by 316 votes to 194, with Conservatives warning it disproportionately affects lower-paid workers
Steven Smith Network Content Editor
07:03, 22 Jan 2026Updated 09:28, 22 Jan 2026
It’s unlikely to be able to be challenged in the Lords(Image: tattywelshie via Getty Images)
A new limit on pension salary sacrifice exempt from national insurance will “whack the lower paid harder”, the Conservatives have warned, as the legislation passed through the Commons. The National Insurance Contributions (Employer Pensions Contributions) Bill secured its third reading by 316 votes to 194, a majority of 122.
Under the Bill, salary sacrifice pension contributions exceeding an annual £2,000 threshold will lose their national insurance exemption from April 2029 onwards. Treasury minister Torsten Bell described these changes as “inevitable”, noting that the cost of current arrangements is projected to triple between their 2017 introduction and the decade’s end.
He characterised the measures in the Bill, initially unveiled in November’s budget, as “pragmatic and balanced” and offered reassurance to savers that pension contributions remain “hugely tax advantageous”. The Conservatives, however, have labelled it a “cynical measure” designed to generate savings during an election year.
Shadow treasury minister Mark Garnier said: “The change appears there have been timed to maximise revenue in 2029-30, the year that counts for the Chancellor’s fiscal rules. That is £4.8 billion to fill the Chancellor’s black hole, which she will have by then, in order to make a cynical attempt to stick to a fiscal rule, a cynical measure that destroys a lifetime of savings opportunities for just one year of revenue.”
The Conservatives have voiced concerns that the proposed changes will disproportionately impact lower-paid workers and those with student loans, urging the Government to exempt basic rate taxpayers from the £2,000 annual cap.
Mr Garnier said: “The change will disproportionately affect basic rate taxpayers, because they pay at 8% NIC on contributions over £2,000 caps compared to the 2% start of higher earners.”
He further highlighted the burden on those with student loans, saying: “But it will also disproportionately impact those with student loans who earn above the repayment threshold, as they will have incurred an extra 9% student loan deduction from their pay.”
He added: “So, at a time when we are trying to get people to do the right thing, to save for the future, the Government, it seems, wants to whack them hard. They want to whack the lower-paid harder.”
He continued his criticism by saying: “And they want to whack also a younger generation even harder than those who enjoyed free university education.”
Addressing the challenges faced by the younger generation, he said: “And for this younger generation, they can’t afford to buy a house, they have to pay for university education, the Government has made it far harder to get a job with their jobs tax and at the time when we are desperately trying to get people to save for their retirement, they make it harder to save for a pension.”
Mr Garnier informed MPs that approximately 850,000 basic rate taxpayers, who utilise pension salary sacrifice, will be affected by this cap. In response, Mr Bell provided reassurance to MPs that 95 per cent of those earning below £30,000 would remain unaffected by the changes, noting that its implementation in 2029 allows workers, employers and pension providers “plenty of time to prepare”.
He further explained that individuals under-saving for their retirement, including the self-employed and lower earners, are “precluded from using salary sacrifice” or are “much less likely to use it than other groups”.
The minister informed the House that the reforms contained within the Bill are “badly needed” to reduce borrowing costs and energy bills, stating: “If we just defend tax reliefs that are hard to justify and whose costs are rising significantly, that does mean higher taxes for everybody else and that is not something that we are prepared to see happen.”
A Conservative amendment seeking to exempt basic rate taxpayers from the £2,000 annual cap on pension salary sacrifice that is free from national insurance was defeated by MPs, with 326 voting against and 191 in favour – a majority of 135. The Liberal Democrats, meanwhile, urged the Government to calculate and publish the projected lifetime value of an individual’s pension both before and after the Bill’s changes take effect.
Mr Bell pointed out that the Government has published a tax information impact note accompanying the Bill’s introduction, which outlines the policy’s impact on the Exchequer, the economy, individuals and businesses. He added that the Office for Budget Responsibility “do not expect any material impact on savings as a result of the Budget 2025 changes”.
The Liberal Democrat amendment was defeated by MPs, with 317 voting against and 195 in favour – a majority of 122. The Bill will now progress to the House of Lords for consideration, though it is expected to be classified as a money Bill, meaning the upper chamber will be unable to block or amend it.
