Accountant warns on pension regime costs

The auto-enrolment regime for pension contributions will result in the UK losing its edge on employment costs, an accountancy firm has warned.

UHY Hacker Young said start-ups and other recently formed companies would be hit hardest by the scheme, under which all employers will have to make a mandatory contribution of 3 per cent of salary to employees’ pensions. The system is being introduced in phases based on company size, with the process completed by 2018.

A worker earning £18,740 currently costs a UK employer £1,553 a year in national insurance contributions on top of their salary, the lowest level in the G8. Under the new rules, UK employers could have to pay £1,916 for the same employee – higher than a US (£1,654) or a Canadian company (£1,712), the firm said.

Roy Maugham, a tax specialist at the firm, said: “The UK is being caught up by other countries on employment costs and is about to be overtaken by key economic rivals.”

The firm calculated the value of employment taxes and social security payments that companies in 25 countries have to make on top of gross salaries.

The UK has the 8th lowest employment costs for employees earning £46,849, with employers paying an extra £5,432 in national insurance contributions per worker.

Under the changed rules, the UK would have just the 13th lowest costs for the same workers, with employers paying £6,477 per employee – making it cheaper to employ a worker in countries such as the US, Canada, Ireland, Denmark and China.