The pensions industry has come out in support of a House of Lords amendment that would increase the proposed cap on salary sacrifice arrangements from £2,000 to £5,000, but remains opposed to the policy overall.

As the National Insurance Contributions (Employer Pensions Contributions) Bill makes its way through parliament, House of Lords member, Baroness Susan Kramer, proposed an amendment to raise the cap, which was agreed to by the Lords.

However, the amendment needs to be passed by the House of Commons if it’s to become part of the finished bill, with the consideration of Lords amendments scheduled for 23 March.

While the pensions industry backed the amendment, it remained against imposing any cap on salary sacrifice arrangements.

Other amendments approved by the Lords included a cap exemption for basic rate taxpayers.

“We are strongly supportive of amendments that exempt basic rate taxpayers from limits on using salary sacrifice arrangements, and raise the cap to £5,000,” said Pensions UK executive director of policy and advocacy, Zoe Alexander.

“These amendments would reduce or remove the negative impacts of changes to salary sacrifice on the majority of savers.

“To be clear, our preferred outcome hasn’t changed. We still believe that changes to salary sacrifice should not take place.

“Even with these amendments, the policy risks pulling more people off track at a time when pension adequacy is already a serious challenge for many people, including those earning above the median.”

Isio head of wealth proposition, Mark Campbell, said the amendment to raise the cap was a “welcome and pragmatic step”.

However, he argued that the amendment was more of a “tweak to a blunt policy” that failed to support the longer-term challenge of underfunded retirement.

“Many individuals are having to choose short-term needs over longer-term security in retirement – and all though this decision by the Lords is welcome, it goes little by way of addressing the larger and increasingly pressing issues that we face as a society,” Campbell added.

Barnett Waddingham head of defined contribution pensions, Mark Futcher, welcomed the amendment, but warned that introducing a cap at any level risked adding unnecessary complexity for employers and confusion for savers.

“Our research shows that nearly two thirds of employees weren’t even aware a restriction was planned, despite more than half already using salary sacrifice today,” he continued.

“With many employers also seeing the system as complicated to operate, policymakers should ask whether the additional administrative burden of a cap and the uncertainty it creates is really worthwhile.

“Salary sacrifice has been an effective mechanism for encouraging retirement saving while helping employers manage costs.

“A good system should make pension saving accessible to all – including smaller businesses and their workers – but also be simple enough for employers to run and employees to understand.

“Policies that support employers in maintaining strong pension provision ultimately benefit employees and the wider economy too.”

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