Small firms and startups will be “hit the very hardest” by the doubling of auto-enrolment employer pension contributions, according to the Federation of Small Businesses (FSB).
From 6 April 2018, the minimum amount employers must by law pay into workplace pensions increased by 2% of qualifying earnings, whilst staff contribute 3%.
This makes the combined total minimum contribution of 5% for more than 9 million workers in the UK.
Minimum contributions to pensions will increase again on 6 April 2019 to 3% for the employer and 5% for staff, making a total minimum amount of 8% of qualifying earnings.
FSB national chairman Mike Cherry said: “The doubling of auto-enrolment employer contributions will hit the very smallest firms and start-ups the hardest. Many have only set up auto-enrolment schemes in the past few months.
“Small businesses in labour-intensive industries such as retail, construction and childcare will feel the impact of this rise most acutely. These sectors are already beset by high inflation and skills shortages.
“That starts with increasing the Employment Allowance to £4,000. At the same time, new incentives need to be put in place to encourage the self-employed, who miss out on auto-enrolment, to save for the future.”