Wage hikes predicted next year as firms bid to keep staff in competitive labour market

Separate research finds 21% of workers have made no financial arrangements at all for their retirement, with affordability cited as the primary reason for lack of planning, especially among older workers

CSO figures show an upward trend of pensioners entering or staying in the workforce. File picture

Businesses across all sectors forecasted wage increases next year in a bid to retain staff as the labour market remains tight and highly competitive, according to research.

A report by business representative group Ibec found the vast majority of 400 senior HR professionals across various industries in Ireland plan to increase pay in 2025 by an average of 3.4%.

“While hiring may be slowing due to higher operating costs, recruitment challenges, and slower global growth, skills shortages in certain areas are likely to persist,” said Maeve McElwee, executive director of employer relations at Ibec.

Ms McElwee signalled that employers are placing a greater emphasis on keeping the staff they already have as the Irish unemployment rate remains at historically low levels.

Maeve McElwee: Employers are placing a greater emphasis on keeping the staff they already have.

Ibec’s annual HR Workplace and Trends report also showed the average increase in overall headcount in workplaces is predicted to taper off from a peak 9.4% recorded earlier this year to 7.2% in 2025.

“Despite easing inflation, wages are expected to continue rising, following trends seen in recent years. This is largely driven by changes in the minimum wage and increased competition for talent,” said Ms McElwee.

Most respondents said that any further pay increases will be in addition to basic wage increases in 2024.

Workers are likely to experience improvements in affordability next year as businesses prepare to hike wages further against a backdrop of lower inflation and interest-rate reductions.

The sectors that recorded the largest pay increases this year were tourism and retail, which Ibec said reflected changes in the minimum wage.

The report also showed that 23% of smaller businesses with fewer than 50 employees, outside of the hospitality sector, will not increase salaries next year.

Meanwhile, separate research by a consumer watchdog found 21% of workers have made no financial arrangements at all for their retirement, with affordability cited as the primary reason for the lack of planning, especially among older workers.

The Competition and Consumer Protection Commission (CCPC) also found that over 50% of adults intend to use savings to fund or partially fund their later years, raising concerns that consumers are not fully cashing in on the tax benefits of investing in a pension plan compared to traditional savings.

The watchdog said employers “play a key role in helping consumers to access financial advice and encouraging increased contributions".

“Where employers offer to match higher pension contributions, it makes employees much more likely to increase their level of investment in their pension,” said Grainne Griffin, CCPC director of communications.

With pensions subject to less tax than wages, savvy employers could opt to invest in their workforce by boosting pension contributions rather than salaries, and reducing their employees' overall tax liability.

Elsewhere, figures from the Central Statistics Office (CSO) have continually shown an upward trend of pensioners entering or staying on in the workforce, which may suggest cost pressures continue to loom large for some demographics despite overall economic improvement.