As the Government heads towards the autumn budget with pension reform on the agenda, new research from Barnett Waddingham warns that raising employer auto-enrolment contributions could tip one in six UK businesses into insolvency. With hiring freezes, headcount cuts, and benefit reductions looming, this stark reality underscores the urgent role advisers must play in helping employers and trustees navigate the trade-offs between pension adequacy and business resilience.
As the Department of Work & Pensions (DWP) actively reviews the UK’s auto-enrolment system, and pre-Budget discussions heat up over whether a mandated increase to pension contributions could be on the cards, new research from independent consultancy, Barnett Waddingham, reveals the impact such a policy change could have on UK businesses.
Crucially, the findings from responses of 500 senior UK HR professionals and business leaders point to a worrying level of financial fragility, with as many as one in six (17%) businesses at risk of insolvency if an increase to employer pension contributions were to be mandated by policymakers.
Such an increase could also risk further disruption to an already constrained labour market; nearly a third (31%) of businesses said they would freeze hiring new staff entirely, or even resort to actively reducing their headcount to manage the potential hike in costs. Elsewhere, it would force employers to put their retention efforts on the line as over a third (36%) said they would reduce or even remove employee benefits within the business.
Concerningly, just 17% of businesses surveyed said they could afford a contribution increase with minimal disruption to their organisation.
Martin Willis, Partner at independent consultancy, Barnett Waddingham (BW), says: “With pension adequacy a growing concern nationwide, and millions of people at risk of falling short of even a minimum level of income in retirement, solving the ticking timebomb of the UK pension system must be top of the Government’s agenda. The current minimum overall contribution rate of 8% 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.These findings highlight the financial tightrope many businesses in the UK are still walking, exacerbated by the national insurance hike and long-term wage inflation.
“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. We need a balanced, sustainable approach that strengthens retirement outcomes for individuals while safeguarding the financial resilience and continuity of UK businesses.”
