“The Chancellor’s announcement that the National Living Wage (NLW) will increase from £10.42 to at least £11 an hour from 1 April 2024 will be welcomed by all UK low earners, putting more money in their pockets, at a time when the cost of living remains high. The increase could even be higher once the Low Pay Commission recommendation is known. This means that those on the NLW will see an increase of at least 5.56%. This is lower than the most recent increases in national average earnings of 8.5% and CPI of 6.3%.
“This is good news for pension saving too, enabling more employees to build up larger pension pots, as pension contributions tend to be a percentage of how much someone earns. A hidden benefit of the increase in living wage is that more people will also benefit from higher employer pension contributions and bring more people into the scope of auto-enrolment.
“Currently, eligible employees working full-time on the NLW of £10.42 (£18,964.40 pa) will benefit from a total pension contribution of £1,018 per year from their own and their employer’s pension contributions. With a NLW of £11 an hour (£20,020 pa) this increases to at least £1,102 from April with the rise in the living wage, meaning they will have an additional £84 going into their pension over the course of the year*. 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.
“Employees are automatically enrolled into a workplace pension scheme once they earn the equivalent of £10,000 a year (£833 per month) in a single job. Once in their workplace pension scheme they benefit from a total of 8% contribution of qualifying earnings paid into their pension, made up of employer and employee contributions, and tax relief.
“Due to a combination of recent higher than normal increases in wages and the proposed increase in the NLW, more people will earn more than the £10,000 earnings trigger bringing then into the scope of auto-enrolment. 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. From April 2024 more employees will cross this threshold, decreasing the number excluded from auto-enrolment and with more benefitting from a valuable employer pension contribution, enabling them to save for their later life.
“Auto-enrolment is currently limited to those aged 22 and above and is due to be extended to all over 18s provided they meet the £10,000 a year earnings trigger. However, the National Living Wage only applies to those aged 23 and over. We are hoping that the Chancellor will also announce similar rate increases to the National Minimum Wage for under 23s to enable them to also benefit from an employer pension contribution.”
*An employee will be eligible for auto enrolment if they are age 22 or over and are earning over £10,000 per year. Figures assumes employee is working 35hrs per week (for 52 weeks) on the National Living Wage and contributing the auto-enrolment minimum levels. Auto-enrolment pension contributions are 8% of a band of earnings (£6,240 to £50,270).
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