Spike in employer pension contributions could throw UK businesses into insolvency
Rumours over potential spikes to employer pension contributions in the upcoming Budget has thrown UK companies into a frenzy, with some admitting it could put them at risk of insolvency.
According to research from consultancy Barnett Waddingham, nearly 20 per cent of businesses fear they could become insolvent if an increase to employer pension contributions was mandated.
Businesses have already been forced to shoulder additional cost burdens following decisions in Rachel Reeves’ maiden budget last year, with the national living wage increasing to £12.21 as of April 2025.
National insurance contribution rates also increased from 13.8 per cent to 15 per cent.
Over 30 per cent of businesses admitted they would freeze hiring new staff entirely or reduce their headcount to deal with the potential hike in costs, putting further pressure on an already constrained and struggling labour market.
Martin Willis, partner at Barnett Waddingham, said: “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.”
Just 17 per cent of the 500 businesses surveyed believed they would be able to absorb the hike with minimum disruptions.
Pension inadequacy
While businesses fear that they will not be able to deal with mandated auto-enrolment hikes, employees are also facing growing concerns that the current state of auto-enrolment leaves them likely to slip into pension poverty.
Pension providers have increasingly been raising alarm bells this year that the minimum contributor rate of 8 per cent is not enough for people to achieve their dream retirement.
Despite these repeated warnings, large numbers of people continue to solely rely on their pension alone, with some believing it will be enough, while others are unable to access other wealth building strategies older generations used to rely on, such as owning property.
In particular, nearly 60 per cent of Gen Z believe that being auto-enrolled in a workplace pension would be enough to save for retirement despite industry figures claiming otherwise, according to research from Standard Life.
The government revived the Pensions Commission in July to address the retirement crisis and repair the system, but Barnett Waddingham warned reforms could not be at the expense of UK businesses.
Willis said: “With pension adequacy a growing concern nationwide, and millions of people at risk of falling short of even a minimum level of income retirement, solving the ticking timebomb of the UK pension system must be at the top of the government’s agenda.”
“We need a balanced, sustainable approach that strengthens retirement outcomes for individuals while safeguarding the financial resilience and continuity of UK businesses.”