By Martin Willis, Partner, Barnett Waddingham
In fact, responses from 500 senior UK HR and business leaders show that one in six organisations (17%) believe a mandated increase in employer pension contributions could push them towards insolvency.
A further 31% say they would freeze hiring, and more than a fifth would actively reduce headcount to cope with the extra cost. Only 17% say they could manage an increase with minimal disruption.
That’s a stark message for policymakers. It’s also a warning for employers: pension policy does not sit on its own. It sits alongside recruitment, retention, reward, AI, health and protection benefits, and the basic commercial realities of running a business in 2025.
This is exactly the tension explored in our wider Employer DNA article, ‘Britain’s Got Talent: the growing commercial importance of retention’. That piece steps back and looks at a labour market that is tightening from several directions at once – and at employers who are trying to hold on to their best people while costs rise.
A tight labour market, tighter margins
Employers are telling us two things at the same time:
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They need to keep the talent they already have. UK economic inactivity and long-term sickness remain high; immigration routes have narrowed; and competition for experienced people has intensified. That’s why so many employers have already increased salaries, boosted training and spent more on healthcare. Retention has become the sensible, commercial strategy.
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They’re close to the limit on cost. Extra compulsory spend – such as a rise in auto-enrolment contributions – forces trade-offs elsewhere. Our survey findings show those trade-offs could be significant: pausing recruitment, trimming benefits or, in extreme cases, putting the business at risk.
So, we have a growing pension challenge on one side and stretched employers on the other. The answer can’t just be “make employers pay more”.
Retention without the right data is expensive guesswork
One of the most striking findings in ‘Britain’s Got Talent’ is that many organisations are investing in people – salaries, purpose, benefits – without first collecting the right employee data.
Two in three employers say they’ve increased pension contributions, but only around a third actually measure pension engagement. The same pattern shows up in benefit usage and in metrics that really tell you if people want to stay – happiness, stress, eNPS. If it isn’t measured, it can’t be managed.
That matters when a new cost arrives. If auto-enrolment minimums do go up, employers will need to know, very precisely, which benefits create the most value for which groups of employees – so they can protect those, and trim elsewhere without damaging retention.
That’s what our Employer DNA framework is designed to do: map the make-up of your workforce, track what people actually use and value, and show where spend is genuinely improving loyalty and performance. Once you have that evidence, it becomes far easier to absorb policy changes because you can re-weight costs where they will have the least impact.
Policy changes should work with employers, not against them
Our survey data is clear: even a modest rise in employer pensions contributions could trigger hiring freezes and benefit cuts. That’s the opposite of what government is trying to achieve, and it’s why we’re calling for a balanced, sustainable approach – one that improves retirement outcomes while protecting the financial resilience of UK employers.
In ‘Britain’s Got Talent’ we make the same point in a broader way: give employers room to design packages that reflect their actual people risks – mental health, long-term sickness, multigenerational workforces, AI-reshaped roles – and they will get better at keeping the people the UK economy needs. Policy that recognises that reality will go further, faster.
Why this article is just the start
This blog focuses on one headline finding – the potential impact of higher employer pension contributions. But it sits inside a much wider story:
• Why domestic and overseas talent pools are shrinking.
• How AI is already changing career pathways.
• Which benefits employees want but employers don’t yet track.
• How to build a retention strategy that holds up even when new costs arrive.
You’ll find all of that – plus our recommendations on workforce data, benefit optimisation and preparing for the Employment Rights Bill – in the full Employer DNA article, ‘Britain’s Got Talent’. It’s the bigger context to the numbers you’ve read here, and it shows how employers can stay competitive even when policy, people and pensions all pull at once.
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