Rachel Reeves has unveiled a hidden pension benefit set to boost retirement income for millions of Britons.
The hidden pension benefit has become apparent following the announcement that the National Living Wage will increase to £12.21 per hour for those aged 21 and over.
This 6.7 per cent rise represents a significant step towards ensuring the minimum wage becomes a genuine living wage.
The National Living Wage rise will also have a positive impact on pension contributions, as employees will be able to build up larger pension pots.
Kate Smith, Head of Pensions at Aegon, explains the hidden advantage and said: “An increase to £12.21 an hour means employees on the National Living Wage who are auto-enrolled into a workplace pension will benefit from a total annual pension contribution of £1,278 a year, made up of their own and their employers pension contributions, meaning an additional £112 going into their pension over the course of a year.”
The 6.7 per cent wage increase significantly outpaces the 4.1 per cent rise state pensioners will receive under the triple lock
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The 6.7 per cent wage increase significantly outpaces the 4.1 per cent rise state pensioners will receive under the triple lock.
It also dominates the September inflation rate (CPI) of 1.7 per cent used to increase most other benefits.
The wage increases for younger workers and apprentices are even more substantial. Those aged 18 to 20 will see a 16.3 per cent rise, taking their hourly rate to £10.
This £1.40 increase could boost full-time younger workers’ pay by £2,500 annually. For 16 to 17-year-olds and apprentices, the uplift is even more dramatic at 18 per cent, raising their hourly rate to £7.55.
The Chancellor confirmed that over 3 million workers will benefit from these pay boosts. This marks a crucial step towards creating a single adult wage rate, which the government plans to implement gradually over time.
Smith continued “Longer term, the Government is also considering opening up auto enrolment to employees aged under 22, who are currently excluded from pension saving.
“These increases in minimum wages make this even more pressing as currently, under 22 year olds are missing out on what would be a valuable employer pension contribution.”
“While welcome, the new minimum living wage still falls short of the real Living Wage which many employers have signed up to, at currently £13.85 an hour in London and £12.60 an hour for the rest of the UK.”
Baroness Philippa Stroud, Chair of the Low Pay Commission, said: “The Government have been clear about their ambitions for the National Minimum Wage and its importance in supporting workers’ living standards.
At the same time, employers have had to deal with the adult rate rising over 20 per cent in two years, and the challenges that has created alongside other pressures to their cost base.
“It is our job to balance these considerations, ensuring the NLW provides a fair wage for the lowest-paid workers while taking account of economic factors.
“These rates secure a real-terms pay increase for the lowest-paid workers. Young workers will see substantial increases in their pay floor, making up some of the ground lost against the adult rate over time.”