Rachel Reeves unveils ‘hidden pension benefit’ for millions in Budget | Personal Finance | Finance
Millions of workers across the UK are set to receive a boost in their pension savings following Chancellor Rachel Reeves’s announcement that the National Living Wage will rise next month. Starting April 1, the wage will increase to £12.21 per hour for those aged 21 and over. This 6.7% pay rise is expected to help workers manage rising living costs while also unexpectedly benefiting their pensions.
Experts suggest that the pay rise will lead to higher pension contributions for those automatically enrolled in workplace pension schemes. Kate Smith, head of pensions at Aegon, said: “The boost is almost four times last September’s inflation rate (CPI) of 1.7%, the figure used to increase most other benefits. It’s also over double the current inflation rate of 2.8%.
“There’s also a hidden pension benefit to increasing the National Living Wage, as it’ll have a positive impact on pensions contributions and enable employees to build up larger pension pots.”
For full-time workers earning the new National Living Wage, this pay increase will translate to an annual salary of approximately £22,222 based on a 35-hour workweek.
Based on the uplift, Aegon’s calculations showed these employees who are auto-enrolled in pensions will receive an additional £112 in contributions over the year, bringing the total annual pension contributions to £1,278.
This sum includes both the worker’s contribution (3%) and that of their employer (5%).
Younger workers are also set to receive large percentage increases in their minimum wage rates next month. Those aged 18 to 20 will see a notable 16.3% rise, bringing their hourly rate to £10.
The hike is even more striking for 16 to 17-year-olds and apprentices. They’re set to receive an 18% increase, bringing their minimum wage up to £7.55 per hour.
Ms Smith continued: “Longer term, the Government is considering opening up pensions auto-enrolment to employees aged under 22, who are currently excluded. These increases in minimum wages make this even more pressing, as many under-22s are currently missing out on what would be a valuable employer pension contribution and part of their remuneration package.”
