Higher employer pension contributions could have a detrimental effect on companies’ ability to retain or hire staff, according to a survey by Barnett Waddingham.
The consultancy group quizzed 500 senior HR professionals and found that 17% were concerned that a mandated increase to pension contributions could threaten their company’s solvency.
Nearly a third (31%) expected their employers to stop hiring if they were forced to pay more into employees’ pension pots, while two-fifths of respondents (22%) said their firms would likely seek to shrink their workforces to manage rising costs.
The Pensions Commission is currently exploring ways in which to improve pension adequacy, with one option being to raise auto-enrolment contributions.
The Institute for Fiscal Studies recently warned that higher contributions could be unaffordable for low earners, and recommended requiring employers to pay into a pension for staff members regardless of any employee contribution.
Meanwhile, the Federation of Small Businesses has argued that the high costs involved in pension provision need to be addressed before auto-enrolment can be expanded.
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Barnett Waddingham’s survey also found that higher pension costs could push more than a third (36%) to reduce or remove other employee benefits to manage the impact.
“We need a balanced, sustainable approach that strengthens retirement outcomes for individuals while safeguarding the financial resilience and continuity of UK businesses.”
Martin Willis, Barnett Waddingham
Martin Willis, a partner at Barnett Waddingham, said the current auto-enrolment total contribution rate of 8% of salary “simply isn’t enough for people to achieve a comfortable retirement”.
“However, as our findings show, even a small increase to contributions could have an adverse effect, disrupting businesses, stalling hiring, and in some cases threatening people’s livelihoods,” Willis continued.
Many UK companies were walking a “financial tightrope” due to the impact of persistent high inflation and the decision by chancellor Rachel Reeves to raise employer national insurance contributions last year.
At the time, many experts warned that the national insurance move could scupper any immediate plans to increase auto-enrolment contributions. Pensions minister Torsten Bell has subsequently stated that there will be no increases to auto-enrolment limits in this parliament.
“As the Pension Commission begins its long and complex journey to address vital areas of our pension system, it’s crucial that the government looks at levers both within pensions and beyond,” Barnett Waddingham’s Willis said. “We need a balanced, sustainable approach that strengthens retirement outcomes for individuals while safeguarding the financial resilience and continuity of UK businesses.”
