£84 extra a year for pensions
The National Living Wage (NLW) will increase to £11 an hour, the chancellor has confirmed at the Conservative Party Conference.
The move will benefit two million of the UK’s lowest paid workers in the cost of living crisis, Jeremy Hunt said in his speech. It will also have benefits for their pensions.
Full-time employees earning the NLW of £10.42 will currently receive a total pension contribution of £1,018 per year from their own and their employer’s pension contributions. The promised rise in the living wage will mean an extra £84 going into their pension over the course of a year, according to calculations by Aegon.
“While this might not seem a lot, even a small increase today, with compound investment growth over many years, will prove very beneficial to future retirement savings, especially for those just starting out in their careers,” said Kate Smith, head of pensions at Aegon.
As a result of higher-than-normal wage increases and the increase in the NLW, more people will earn more than the £10,000 earnings trigger, which will bring them into the fold of auto-enrolment.
Smith added: “This will particularly benefit women, who tend to be on lower earnings, as many work part-time, or have multiple jobs, each one below £10,000 a year.”
Removing the trigger
Campaigners have long argued that the £10,000 earnings trigger should be scrapped altogether. This would allow people with multiple part-time jobs, each of which pay less than £10,000 per year, to benefit from auto-enrolment.
If the earnings trigger were removed, an additional 16% (171,000) multiple jobholders would become eligible for auto-enrolment, including 147,000 women and 24,000 men, according to The Underpensioned Index 2022, a report by NOW: Pensions and the Pensions Policy Institute. Taking pension contributions from the first £1 of salary would increase pension wealth by 52%, according to the same report.
However, the secretary of state decided not to lower the earnings trigger in January 2023. At the time, the government explained: “The decision reflects the key balance that needs to be struck between affordability for employers and individuals, and the policy objective of giving those who are most able to save the opportunity to accrue a meaningful level of retirement savings. It also reflects the need for stability in the light of the current prevailing economic circumstances. It provides consistency of messaging for both employers and jobholders.”
