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Increasing employers’ pension contributions will be "another nail in the coffin of UK Plc"

ended 07. July 2025

Rachel Reeves is expected to announce a pensions overhaul at her Mansion House speech on 15 July. One area the Chancellor may address is how much companies and their staff contribute to their workplace pensions. 

The minimum contribution rate by an employer in the UK has been set at 3% since 2019, but financial experts warned that raising this rate could be "another nail in the coffin of UK Plc” for businesses already grappling with National Insurance hikes and a flailing economy.

Rachael Chadwick-Harrison, Managing Director at Chadwick Accountants & Bookkeeping, said: "Increasing employers’ pension contributions risks taking many struggling businesses to breaking point. For small and medium-sized enterprises in particular, these additional costs could prove unsustainable. The knock-on effect will almost certainly be felt by the average worker. There will be fewer job opportunities, reduced hours and even the possibility of redundancies as employers look for ways to manage rising expenses.

"This policy direction reflects a broader pattern of decisions that appear to disregard the realities faced by business owners. Instead of supporting growth and job creation, the government’s approach seems increasingly disconnected from the needs of those who drive the economy."

Mike Staton, Director at Staton Mortgages, was withering in his assessment: “After decimating UK businesses with increases in National Insurance and the Minimum Wage, increasing employers' pension contributions would be the final nail in the coffin for many small businesses. This shows how out of touch this inept Labour government is given the dire economic state of this country. This will lead to unemployment, price increases and businesses folding.”

Riz Malik, Director at R3 Wealth, agreed: "Yes, there is a ticking retirement time bomb in this country. However, UK businesses simply cannot afford a significant increase in pension contributions following the recent Budget, which has led to a rise in their National Insurance bills. You have to make employers want to grow and hire, not find reasons to cut headcount. If employers' contributions are forcefully increased, this is a terrible idea and another nail in the coffin of UK Plc."

Scott Gallacher, Director at Rowley Turton, said that while higher employer pension contributions are a good idea in principle, “now is not the time”.

He added: “Businesses are still grappling with National Insurance hikes and steep rises in the Minimum Wage. Forcing up pension costs now could be the final straw for firms already on the edge, not to mention charities running on tight budgets. We need people saving more for retirement, but any increases should be phased in carefully. Otherwise, we risk job losses, wage freezes and making the UK less competitive internationally as higher employment costs push firms to relocate or scale back investment. It’s about balance: securing workers’ futures without crippling businesses or damaging our global competitiveness.”

Philly Ponniah, Chartered Wealth Manager at Philly Financial, held much the same view: "Businesses are already reeling from National Insurance increases and minimum wage increases. Throwing additional pension contributions on top risks pushing employers to the brink, potentially triggering job losses that hurt the very workers we're trying to help. The current 3% minimum hasn't moved since 2019, but timing matters. We need a phased approach that acknowledges business reality while addressing the retirement crisis."

Rob Mansfield, Independent Financial Advisor at Rootes Wealth Management, said it was a “delicate balancing act”. He added: “In general, people need to save more for retirement but if the rates increase too much, companies will lay people off or people will opt out of pensions. This would be a worse outcome than the situation today. This is the cost of living crisis in a nutshell. The government should leave things as they are for now. If the overall tax rate goes down in the future, that would be a perfect time to raise contribution levels.”

Ross Lacey, Director at Fairview Financial Management, said “forcing employers to pick up the slack will add yet another barrier to business growth and job creation following the recent increase in Employers' National Insurance and proposed changes to employment law".

12 responses from the Newspage community

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Rachael Chadwick-Harrison
Managing Director at Chadwick Accountants & Bookkeeping
Increasing employers’ pension contributions risks taking many struggling businesses to breaking point. For small and medium-sized enterprises in particular, these additional costs could prove unsustainable. The knock-on effect will almost certainly be felt by the average worker. There will be fewer job opportunities, reduced hours and even the possibility of redundancies as employers look for ways to manage rising expenses. This policy direction reflects a broader pattern of decisions that appear to disregard the realities faced by business owners. Instead of supporting growth and job creation, the government’s approach seems increasingly disconnected from the needs of those who drive the economy.
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Riz Malik
Independent Financial Adviser at R3 Wealth
Yes, there is a ticking retirement time bomb in this country. However, UK businesses simply cannot afford a significant increase in pension contributions following the recent Budget, which has led to a rise in their national insurance bills. You have to make employers want to grow and hire, not find reasons to cut headcount. If employers' contributions are forcefully increased, this is a terrible idea and another nail in the coffin of UK Plc.
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Samuel Mather-Holgate
Managing Director & IFA at Mather and Murray Financial
Yet another hike to the state pension age would be the biggest bang for her buck. She could announce this at the same time as a strengthening of the auto-enrollment criteria and the amounts that both employers and members need to contribute. A further increase in both areas have been coming, given the effect that this woudl have on the ecomy and that votes dont immediately feel the impact of a later retirement.
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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
The government have made it less appealing to save into pensions for many; with limits on the amount they can contribute without being penalised, the prospect of inheritance tax being levied on any balances left on death and allowing legacy pension providers to operate inflexible, opaque, not-fit-for-purpose schemes for too long. To now potentially consider forcing employers to pick up the slack will add yet another barrier to business growth and job creation following the recent increase in Employers' National Insurance and proposed changes to employment law. If the government want people to take more responsibility for their retirement then they could instead launch campaigns to promote the benefits of professional financial advice, get rid of limits on how much that can be contributed each year, and reverse the changes being made in 2027 which would see pensions subjected to the same IHT regime as non-pension assets.
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Scott Gallacher
Director at Rowley Turton
While higher employer pension contributions are a good idea in principle, now is not the time. Businesses are still grappling with National Insurance hikes and steep rises in the minimum wage. Forcing up pension costs now could be the final straw for firms already on the edge—not to mention charities running on tight budgets.

We need people saving more for retirement, but any increases should be phased in carefully. Otherwise, we risk job losses, wage freezes, and making the UK less competitive internationally as higher employment costs push firms to relocate or scale back investment.

It’s about balance: securing workers’ futures without crippling businesses or damaging our global competitiveness.
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Tony Redondo
Founder at Cosmos Currency Exchange
If we give the government the benefit of the doubt, this is well-intentioned and could boost retirement savings, addressing the IFS’s warning that 15M+ face retirement poverty. Higher contributions may improve pension pots and reduce state welfare reliance, while “megafunds” could fund infrastructure projects. The issue is that unlike the public sector with its ‘magic money tree’, this is yet another burden on the stressed private sector, already under considerable strain from recent NIC and minimum wage hikes, risking further job losses and corporate insolvencies and may not benefit anyone if riskier investments end up harming savers if mismanaged.
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Mike Staton
Director at Staton Mortgages
"After decimating UK businesses with increases in National Insurance and the Minimum wage, increasing employers' pension contributions would be the final nail in the coffin for many small businesses. This shows how out of touch this inept Labour government is given the dire economic state of this country. This will lead to unemployment, price increases and businesses folding. Setting the UK further back in its aim to become economically stable. The Labour tactic to improve this economy appears to be to throw as much dirt at the wall and see how much sticks! Even the thought of this brings shivers to my spine and indicates how poorly run this once great nation actually is.
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Philly Ponniah
Chartered Wealth Manager and Financial Coach at Philly Financial
Most people have absolutely no idea how challenging their retirement will be if they stick to 5% contributions. We're facing a looming crisis, but it's not because people don't care, it's because retirement feels too distant and abstract. As a financial coach, I see how even high earners struggle to visualise what their future needs will look like. However, businesses are already reeling from National Insurance and minimum wage increases. Throwing additional pension contributions on top risks pushing employers to the brink, potentially triggering job losses that hurt the very workers we're trying to help. The current 3% minimum hasn't moved since 2019, but timing matters. We need a phased approach that acknowledges business reality while addressing the retirement crisis. The key is helping people connect emotionally with their future selves through compassionate education, making pension planning feel urgent without being overwhelming.
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Rob Mansfield
Independent Financial Advisor at Rootes Wealth Management
There's a delicate balancing act to be had. In general, people need to save more for retirement but if the rates increase too much, companies will lay people off or people will opt out of pensions. This would be a worse outcome than the situation today. This is the cost of living crisis in a nutshell. The government should leave things as they are for now. If the overall tax rate goes down in the future, that would be a perfect time to raise contribution levels.
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Rob Peters
Principal at Simple Fast Mortgage
Boosting pension contributions is essential, but timing is everything. Rolling out increases during a fragile economic recovery risks backfiring. A phased, realistic approach, coupled with targeted tax reliefs for SMEs, could strengthen pension outcomes without crushing employers. Otherwise, the government risks creating a retirement crisis and an unemployment crisis all in one go.
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Kundan Bhaduri
Entrepreneur, Investor and Landlord at The Kushman Group
Intentions aren’t enough, execution matters a lot more. If Reeves pushes forward with a sharp rise in minimum employer pension contributions, it risks being yet another centrally planned policy with noble optics but harmful downstream effects. SMEs that are responsible for over 99% of UK businesses and around 60% of private sector employment have already absorbed hits from inflation-linked wage demands, spiralling business costs, and an increasingly complex tax environment.

A sudden hike in pension obligations will force many to cut hiring, scale back operations, or worse, shut up shop.

Yes, our nation’s private retirement provision is patchy at best. But the solution shouldn’t come at the cost of productivity and job creation. A phased increase, with allowances for start-ups and low-margin sectors, would be far more pragmatic. Encouraging matching schemes or targeted incentives (rather than top-down diktats) is key to building better retire better retirement outcomes for everyone.
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Debbie Porter
Managing Director at Destination Digital Marketing
Raising the minimum employer contribution to pensions is yet another expense for small businesses, many of which are already managing rising National Insurance costs and increases to minimum wage brackets. These businesses are responding by cutting headcount, reducing hours, lowering wages, and squeezing margins. The cost of hiring a young person with no experience and significant training needs is already limiting job opportunities for this group. For many employers, taking a chance on a younger worker has become too risky, particularly in light of new measures set out in the Employment Bill.

Higher pension contributions will also make more experienced, higher-paid staff more costly, adding further pressure to job availability. I am already seeing how many small businesses are responding, with a noticeable shift in my LinkedIn alerts. More roles are now offered on a freelance basis, shifting added costs onto the worker. All of this is happening while consumer confidence remains weak.