Minimum wage hike to aid pension saving for low earners

Ahead of the Budget speech on Wednesday, the government said it had accepted recommendations from the Low Pay Commission to increase the National Living Wage and National Minimum Wage – boosting the pay packets of around 2.7 million workers.

The changes mean that, from April, a full-time worker on the National Living Wage will see an increase in pay of £900 a year, but for someone on the National Minimum Wage working full-time, it will mean a £1,500 boost.

“While day-to-day expenses remain a priority for low earners, even modest savings through auto-enrolment can make a meaningful difference at retirement.”

Mike Ambery, Standard Life

Mike Ambery, retirement savings director at Standard Life, said that beyond the immediate pay boost, the increase also brings a longer-term advantage for savers through higher workplace pension contributions.

“While day-to-day expenses remain a priority for low earners, even modest savings through auto-enrolment can make a meaningful difference at retirement,” he said.

Standard Life estimates that a full-time employee earning the new National Living Wage could accumulate a pension pot worth around £208,000 in today’s terms by retirement age.

Kate Smith, head of pensions at Aegon, said the increase in the National Living Wage meant that employees will benefit from a total annual pension contribution of at least £1,850.56 a year, made up of their own and their employer’s pension contributions. This is roughly an additional £72 going into an individual’s pension over the course of a year.

She said: “Many employees may receive more into their pension if their employer pays higher pension contributions than the auto-enrolment minimum. This may not seem much, but the earlier and longer pension contributions are made, the bigger the likely pension when individuals come to retire.”

In a video posted online on Tuesday, chancellor Rachel Reeves said: “I know that the cost of living is still the number one issue for working people and that the economy isn’t working well enough for those on the lowest incomes. Too many people are still struggling to make ends meet. And that has to change.”

In addition, the government has also introduced other measures aimed at helping low earners. The Help to Save scheme is expected to be made permanent from 2028 to deliver a 50% boost on savings for 4.5 million low earners, the Treasury announced earlier this week, with savers also being eligible for a £1,200 government bonus on their savings to help with the cost of living.