Businesses warn pension contribution hike could trigger insolvencies as Budget rumours grow

"Rumoured increases to employer pension contributions in next month's Budget are sparking panic among UK businesses, with nearly one in five firms warning they could face insolvency if contribution rates rise. A survey of 500 businesses by consultancy Barnett Waddingham found that 19% of employers believe a mandatory hike in workplace pension contributions could push them over the edge financially. More than 30% say they would respond by freezing recruitment or cutting headcount, further tightening an already strained labour market."

"The warning comes as companies continue to absorb cost increases introduced in Chancellor Rachel Reeves' previous Budget, including: The National Living Wage rising to £12.21 from April 2025 and Employer National Insurance Contributions increasing from 13.8% to 15%. Martin Willis, partner at Barnett Waddingham, cautioned that even a modest rise in pension costs could have severe consequences. "Even a small increase could disrupt businesses, stall hiring and in some cases threaten livelihoods," he said. "These findings highlight the financial tightrope many firms are still walking, exacerbated by the national insurance hike and long-term wage inflation.""

"Only 17% of firms surveyed said they could absorb the rise with minimal disruption. While businesses fear additional financial pressure, employees are also feeling the strain, with growing concern that the current 8% auto-enrolment minimum contribution is insufficient for a secure retirement. According to Standard Life, almost 60% of Gen Z workers mistakenly believe auto-enrolment alone will provide a comfortable pension, despite industry experts warning it falls far short of long-term adequacy."

Rumoured rises to employer pension contributions could force significant financial strain on UK businesses, with 19% of surveyed firms saying a mandatory increase might push them into insolvency. Over 30% of firms would respond by freezing recruitment or reducing headcount, tightening an already strained labour market. Companies are still absorbing previous cost increases, including a National Living Wage rise to £12.21 and an increase in employer National Insurance from 13.8% to 15%. Only 17% of firms say they could absorb further pension cost rises with minimal disruption. Employee confidence is weak: almost 60% of Gen Z mistakenly believe auto-enrolment alone ensures a comfortable pension. The Pensions Commission has been revived, but reform must avoid jeopardising business survival.

Read at Business Matters