Pension provision could suffer under the higher minimum wage being introduced next year as employer industry bodies say companies are looking at the wider rewards package in an attempt to claw back costs.
The government’s national living wage was introduced in the most recent Budget, effectively raising the minimum wage to £7.20 from £6.50 for those over the age of 25.
The kinds of firms that are hit the hardest are those who are about to stage
Lena Levy, CBI
The higher minimum will increase employers' overall wage spend, leading some to predict they will seek to make savings in other parts of the reward offering, such as pensions.
While the new level is lower than the £7.85 living wage suggested by the Living Wage Foundation for those outside London, the government’s rate will rise further to £9 by 2020.
Lena Levy, head of pensions at the Confederation of British Industry, said: “The money needs to come from somewhere. We’ve spoken to many of our members and we know many are looking at the wider reward package.”
Levy said the companies hit hardest were likely to be those with many employees on low or minimum wage, such as small employers or those in the retail, hospitality and care industries.
She added: “The kinds of firms that are hit the hardest are those who are about to stage [for auto-enrolment]. Also, large retailers are about to re-enrol.”
New member challenge
Darren Philp, director of policy at provider B&CE, said the impact on pensions from small employers may be limited, as many are likely to enrol members on minimum contributions anyway.
However, he added companies with existing provisions may cut them for new employees, while keeping existing employees on higher levels.
“It’s not necessarily the case that you’ll see cuts in pension contributions, but you might see that people might be coming in to the employer and they’ll be on lower levels,” he said.
It’s not necessarily the case that you’ll see cuts in pension contributions, but you might see that people might be coming in to the employer and they’ll be on lower levels
Darren Philp, B&CE
David Nash, senior policy adviser at the Federation of Small Businesses, said the impact of the change would extend beyond just those employees on the minimum wage, as companies could raise overall wages to maintain the pay gap between workers in different brackets.
“The moment the living wage comes in, the challenge will be what to do about the differential,” he said. “The cost might not just be lifting up those on the minimum wage, but also lifting up those who are paid slightly more.”
Despite this, Nash added many companies would not be affected by the change.
“The picture will be mixed," he said. "The impact will be concentrated on certain sectors.”
