With the National Living Wage set to increase by 6.7% to £12.21 per hour for workers aged 21 and over, plus other changes kicking in from April, Kate Smith, Head of Pensions at Aegon, comments on the changes and explains how they’ll help to boost pensions from 1 April 2025:
“From April, all workers aged 21 and over, and on the lowest incomes, will benefit from a salary increase, as the National Living Wage rises by a massive 6.7% to £12.21 per hour, boosting their spending power and going some way to alleviate the ongoing burden of rising living costs.
“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%, announced today.
“There’s also a hidden pensions 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.
“The increase to £12.21 an hour (£22,222 p.a. based on a 35 hour working week) means employees on the National Living Wage that have been 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 employer’s pension contributions. That’s an additional £112 going into their pension over the course of a year.
“The minimum wage for under-20s and apprentices remains lower than the new National Living Wage, but in percentage terms, their upcoming increases are even larger. 18 to 20-year-olds will receive a 16.3% increase to £10 an hour, while 16 to 17-year-olds and those receiving the apprentice rate get the greatest percentage boost at 18% to £7.55 an hour. These uplifts reflect the government’s aim to equalise the minima for all adults regardless of their age.
“Longer term, the government is also 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.
“Despite the increase, the new National Living Wage still falls short of the Real Living Wage, which many employers have signed up to pay and currently stands at £13.85 an hour in London and £12.60 an hour for the rest of the UK.”
