Pay rises and pension contributions – can your business afford both?


The general consensus of opinion is that the UK economy is on the road to recovery, especially in the small to medium enterprise (SME) sector, the traditional engine room of growth in Britain.

Yet in most cases this has not translated to pay rises for employees, in fact after inflation most employees have experienced a pay cut in real terms .If you combine this with significant increases to household essentials such as utility bills and transport costs this puts a real strain on a lot of employees personal finances.

So it is no surprise that business owners are cautiously starting to earmark a percentage of their budget to reward and retain their loyal staff that have been with them through this difficult period.

Whilst some employees are starting to ask questions about when improved performance will translate into improved pay.

Two Pay Increases

Before an employer increases pay they need to factor whether this will translate into higher workplace pension costs (as part of the auto enrolment legislation). For those employees already in a scheme then in most cases increased pay will mean increased pension contributions.

For those employees not in a scheme it may take them above certain earning thresholds. Changing your responsibilities as an employer. For example increasing a 25 year old males’ pay from £8,500 to £10,500 per year would require them to be automatically enrolled (based on current legislation as at June 2015) and as such creates the need for a pension contribution as well as a pay increase.

Total Pay

Anecdotally I have observed a trend for some or all of a pay increase to be passed on as a pension contribution rather than as increased take home pay. This requires a fundamental shift in employer and employee thinking about what pay is.

“Total pay” is more than what goes into a bank account at the end of the week or month for example it can be made up of salary, pension payments, free parking and private medical insurance.

Other costs

Finally it is worth noting that auto enrolment is not business as normal for most SME’s, it requires a root and branch review of payroll, human resources and the role of key business advisors (such as accountants and financial advisors). This review entails time and money being invested wisely to get the job done on time and on budget.

This blog is updated from the attached article;

The content of this article is not intended to represent any form of financial advice or recommendation or other professional advice or services. The views expressed are Duncan Reeves’ as at the date appearing on the material and may be subject to change without notice. Whilst information contained in it is compiled in good faith and based on sources believed to be reliable, neither its accuracy nor completeness are guaranteed. Your use of the content is at your own risk, you should not rely on this information to make an investment or financial decision. Past performance is no guarantee to future performance. The value of investments can fall as well as rise so you could get back less than you invest.

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About Author

Duncan Reeves

Duncan Reeves - Employee Benefits Specialist. Duncan has worked in financial services for over 15 years specialising in pensions and employee benefits and has worked for some of the most respected pension providers in the UK. He currently works for a national advisory business based in Bristol as an auto enrolment specialist where he is involved in every aspect of helping employers comply with their new responsibilities. Duncan’s favourite part of the role is being “out in the field” meeting with employers. Duncan can be contacted at Sanlam Wealth Planning on or visit

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