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One in 10 bosses limit pay rises to absorb higher pension costs

Paloma Kubiak
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Paloma Kubiak

One in 10 employers say they have limited staff wage rises to deal with increasing pension costs, a government report reveals. 

Companies must contribute at least 2% to employees’ pension pots under auto-enrolment rules. But this rises to 3% from April 2019.


A report published by the Department for Work and Pensions (DWP) revealed that where employers had faced an increase in total pension contributions, the majority (71%) said costs had been absorbed as part of overheads.

Half (47%) of employers said they had absorbed the costs through a reduction in profits, 11% said they had increased prices and 10% said they had implemented lower wage increases.

Just 5% of the near 3,000 organisation surveyed said they had changed their existing pension scheme or re-structured or reduced their workforce.

Tom Selby, senior analyst at AJ Bell, said it was positive that most employers were absorbing the costs of automatic enrolment, but said that was little consolation to those who have already experienced pay restraint as a result of the reforms.

“Some workers will face a double whammy as pay increases are held off at the same time as contributing to a workplace pension reduces their take-home pay,” he said.

Minimum employee contributions are also increasing in 2019 from 3% to 5%.

Selby added: “All this coming at the same time as inflation returns to the UK economy – albeit at relatively low levels historically – means some workers will be left with a difficult choice on whether to stay-in or opt-out of their workplace pension.

“While auto-enrolment in general has been a success story to date, there are reasons for caution and complacency must be avoided at all costs. The next stage of the reforms needs to focus on boosting engagement levels among employees and encouraging people to save above the minimum.”