Increase in National Living Wage from £8.91 per hour to £9.50 per hour
“Confirmation of a 6.6% rise in the National Living Wage to £9.50 per hour was hardly a surprise but should provide a welcome boost to lower paid workers. As a result, a 23-year-old working a 37.5-hour week will earn at least £18,525 in 2022/23, compared to £17,374.50 in 2021/22.
“The impact of this pay hike will be tempered by inflation, with CPI currently standing at 3.1%. If price increases continue at this level, the ‘real’ increase in the National Living Wage will be 3.5%.
“However, with official projections pointing to inflation of 4% in 2022, the impact of this wage increase will likely be dampened still further.
“And while clearly the knock-on impact of increasing the Living Wage remains highly uncertain, it is possible it will spark a ‘wage-price spiral’, with rising earnings fuelling higher inflation and pushing the Bank of England closer to increasing interest rates to keep rising prices in check.”
Pensions impact
“The National Living Wage rise will also have an impact on people’s pensions as minimum contributions under automatic enrolment will also go up.
“Someone earning the National Living Wage in 2021/22 who was auto-enrolled at the minimum of 8% of relevant earnings would pay employee contributions of around £445 over the course of the year, with their employer paying in £334 and a further £111 coming from basic-rate tax relief.
“Assuming relevant earnings remain the same in 2022/23, minimum employee contributions will rise to around £491, with their employer adding £367 and a further £123 coming via tax relief*.”
*Figures rounded to the nearest £1; assumes worker is automatically enrolled at the minimum with contributions based on earnings between £6,240 and £50,270
