Concerns are mounting among UK businesses over potential increases to employer pension contributions expected to be announced in next month’s Budget, with nearly one in five companies warning they could face insolvency if rates rise.
A new survey by consultancy firm Barnett Waddingham of 500 employers found that 19% believe a mandatory increase in workplace pension contributions could push them to the brink financially. More than 30% said they would be forced to freeze recruitment or reduce staff numbers to cope with the added costs — a move that could worsen pressure in an already tight labour market.
The warning follows a series of cost hikes introduced in Chancellor Rachel Reeves’ previous Budget, including the National Living Wage increase to £12.21 from April 2025 and the rise in Employer National Insurance Contributions from 13.8% to 15%.
Martin Willis, a partner at Barnett Waddingham, cautioned that even a modest rise in pension contributions could have a ripple effect across the business landscape. “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 higher pension costs without significant disruption.
While employers fear new financial burdens, workers are increasingly worried that the current 8% minimum auto-enrolment contribution is not enough to secure a comfortable retirement. According to research by Standard Life, nearly 60% of Gen Z employees mistakenly believe that auto-enrolment alone will provide sufficient retirement income, despite industry experts warning that it falls far short of long-term adequacy.
In response to growing concerns over pension sustainability, the government revived the Pensions Commission in July to explore potential reforms. However, Barnett Waddingham warned that changes must not jeopardise the viability of small and medium-sized businesses already struggling with inflation and rising costs.
“We need a balanced, sustainable strategy that strengthens retirement outcomes while protecting the financial continuity of UK employers,” Willis said.
As the 26 November Budget approaches, pressure is mounting on the Treasury to find a compromise that supports both workers’ retirement security and business stability. Economists say that any move to raise employer pension obligations is likely to fuel calls for phased implementation, tax relief or offsetting measures to shield smaller firms from financial distress.
With insolvency risks climbing and job market fragility deepening, the government faces a difficult balancing act: bolstering pensions without pushing more companies — and jobs — to the edge.
