There is growing pressure to review current rules around employers’ pension contributions, which some firms say would have a significant effect

Some small business owners say they may be forced to reduce staff benefits, or shut down altogether, if the Government increases mandatory employer pension contributions in future.

Although pensions minister Torsten Bell has said that no changes will be introduced during this parliament, the revival of the Pensions Commission last month has signalled that long-term reform is back on the agenda.

Bell said the renewed focus aims to “complete the job” of tackling the risk of poverty in retirement.

Currently, employees and employers must contribute a combined minimum of 8 per cent of a worker’s salary into a pension – 5 per cent from the employee and 3 per cent from the employer.

But with a growing number of people not saving enough for retirement, policymakers are under pressure to review these rules.

Without reform, retirees in 2050 could see private pension income fall by 8 per cent compared with today, Government data show.

Groups most at risk of under-saving include the self-employed, lower earners, and people from ethnic minority backgrounds.

However, many business owners argue that any hike in employer contributions would hit them at a time when they are already struggling with the cumulative cost of national insurance (NI) increases, inflation, and rises to the minimum wage.

‘We’re already holding on by a thread’Business owner Amy Lewis is already struggling, she says

Amy Lewis, the founder of Mooeys, a group of specialist beauty salons, said she has already had to make two redundancies this year due to higher national insurance bills.

She has three of her own salons and four franchises and said: “Small and medium businesses have been hit so hard over the last five years and are holding on by a thread, especially in the hair and beauty sector.

“We appreciate that living costs are rising and so should minimum wage, but there’s only so much within our margins to accommodate this before it’s just not worth it.

“Forcing us to increase pension contributions is just going to force more businesses like mine into a self-employment model rather than fully employed as we are now.

“The more costs that are forced on to us as small and medium businesses, the harder it is for us to survive.”

Lewis, 44, from Bedfordshire, said the combination of the pandemic, rising business taxes and inflation has left her with no space to plan ahead.

She added: “We’re still paying off Covid loans, and every year brings a new cost that we’re expected to absorb without question. There are only so many price increases we can pass on to clients before it stops being viable.”

For others, a rise in contribution rates could delay efforts to improve benefits for staff.

‘We need to be supporting businesses to grow’Laura Dolphin doesn’t believe that upping pension contributions for employers is a necessary step

Laura Dolphin runs a small social enterprise – Dolphin Outsourcing Ltd – employing five people and several freelancers.

The 36-year-old said: “We were very interested in providing health support, due to the challenges many of us are facing with dental costs and access to quick and quality healthcare because of the challenges the NHS is facing. This won’t be an option if pension contributions are upped.”

Dolphin, who is from London but now lives in Northamptonshire, doesn’t believe this is a necessary step, adding: “We need to be supporting businesses to continue to operate, to give them room and support to grow.”

While she acknowledged the policy may not have an immediate financial impact, she is concerned about the long-term implications for growth.

She explained: “Big changes inevitably mean an increase in costs.

“We have a small, employed team and we also work with a freelance team, so an increase in pension contributions is marginal for us currently but could have an impact in the future as we grow.”

‘I’ve already had to move my business offshore’Zoe Price has been forced to make changes she didn’t expect

Zoe Price, 48, who runs a CV-writing business, Resume Pilots, from Wiltshire, said the business has already been forced to shift to overseas staffing to manage costs.

She said: “It simply would not be sustainable for my business and would have a detrimental effect on our cash flow.

“Small businesses need low costs, favourable tax regimes and certainty in order to make the long-term decisions around staffing levels.

“Without this, the small and medium-sized business market will become risk-averse, which further contributes to a stagnating economy.”

A Government spokesperson said: “We have explicitly ruled out any increases to minimum automatic enrolment contribution rates for the entirety of this Parliament.

“The Pensions Commission will consider who is missing out on the chance to save for a decent living in retirement, as well as the balance between employees and employers in terms of pension contributions, with the final report due in 2027.”