Increasing employer auto-enrolment pension contributions could risk pushing 17 per cent of businesses into insolvency, analysis from Barnett Waddingham has found, highlighting the "financial tightrope" many companies in the UK are walking.

The survey of around 500 senior UK HR professionals and business leaders found a "worrying" level of financial fragility amongst businesses, revealing that an increase in auto-enrolment employer contributions could cause nearly a third (31 per cent) to introduce a freeze on hiring new staff entirely.

In addition to this, more than a fifth (22 per cent) said that they would have resort to actively reducing their headcount to manage the potential hike in costs, while 36 per cent said they would reduce or even remove employee benefits within the business.

"Concerningly", just under a fifth (17 per cent) of businesses surveyed said they could afford a contribution increase with minimal disruption to their organisation.

Barnett Waddingham partner, Martin Willis, acknowledged that while the current minimum overall contribution rate of 8 per cent "simply isn’t enough", even a small increase to contributions could have an adverse effect, disrupting businesses, stalling hiring, and in some cases threatening people’s livelihoods.

"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," he stated.

"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."

Given this, Willis stressed the need for a "balanced, sustainable approach" that strengthens retirement outcomes for individuals while safeguarding the financial resilience and continuity of UK businesses.

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