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Rise in employer pension contributions could push firms to the brink: research

by Emma Simon
21/10/2025
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One in six businesses would face insolvency if the government pushes forward with plans to increase employer auto-enrolment pension contributions, according to new research.

This survey, from pension consultants Barnett Waddingham, suggested that adding further costs to employers could have a significant impact on employment in the UK, with two-fifths of firms (22 per cent) saying they would look to reduce staff, and a third adding that this would lead to recruitment freezes.

This survey comes as the Department of Work & Pensions (DWP) actively reviews the UK’s auto-enrolment system, and speculation rises whether a mandated increase to pension contributions could be included in the forthcoming Budget.

Barnett Waddingham says these findings point to a worrying level of financial fragility across the businesses surveyed, who are already whom dealing with increased employer national insurance costs, introduced in the last Budget.

This could also risk further disruption to an already constrained labour market. The survey suggested that a change may also force employers to put their retention efforts on the line, with over a third (36 per cent) of respondents saying they would  t reduce or remove employee benefits within the business as a result.

Overall just 17 per cent of businesses surveyed said they could afford a pension contribution increase with minimal disruption to their organisation.

Barnett Waddingham partner Martin Willis 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 per cent 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.”

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