Rumors of increases to employers’ pension contributions in next month’s budget are causing panic among British businesses. Almost one in five companies warn that they could face insolvency if contribution rates rise.
A survey of 500 companies by consultancy Barnett Waddingham found that 19% of employers believe a mandatory increase in company pension contributions could push them to the brink of financial crisis. More than 30% say they would respond with a hiring freeze or downsizing, which would further exacerbate an already tight labor market.
The warning comes as businesses continue to absorb cost increases introduced in Chancellor Rachel Reeves’ previous budget, including: The national living wage will rise to £12.21 from April 2025 and employers’ national insurance contributions will rise from 13.8% to 15%.
Martin Willis, partner at Barnett Waddingham, warned that even a small increase in pension costs could have serious consequences.
“Even a small increase could disrupt businesses, hinder hiring and, in some cases, threaten livelihoods,” he said. “These results highlight the financial balancing act faced by many companies, exacerbated by increases in Social Security and long-term wage inflation.”
Only 17% of companies surveyed said they could manage the surge with minimal disruption.
While companies fear additional financial pressure, workers are also feeling the strain, and there are growing concerns that the current minimum contribution of 8% for auto-enrolment is not enough to ensure a secure retirement.
According to Standard Life, almost 60% of Generation Z workers mistakenly believe that auto-enrolment alone will provide a comfortable pension, although industry experts warn that this is far from enough in the long term.
The government revived the Pensions Commission in July to tackle the looming pensions crisis, but Barnett Waddingham warned that the reform must not come at the expense of companies’ survival.
Willis urged a cautious approach: “We need a balanced, sustainable strategy that strengthens retirement prospects while protecting the financial continuity of British employers.”
Given the rising risks of insolvency and the increasing fragility of the labor market, any attempt to increase employers’ pension obligations is likely to increase calls for gradual implementation, tax incentives or compensatory measures to protect smaller companies.
As the November 26 budget approaches, the government faces a difficult trade-off: it must improve the adequacy of pensions now – or risk putting more companies under financial pressure and losing jobs in the process.
