The National Living Wage will rise 9.7% to £11.44 and will be extended to include workers aged 21 and 22.
Fresh analysis from Aegon shows that this increase means a 22-year-old earning the National Living Wage saving into their workplace pension every year until they reached 68, would amass an additional £37,200 boosting their workplace pension savings pot from £360,500 to £397,700.
Kate Smith, Head of Pensions at Aegon, said: "This 9.7% wage increase is good news for workers on the National Living Wage for the very obvious reason that it boosts pay packets, but the hidden benefit is that it will also have a positive impact on workplace pension contributions.
"The National Living Wage will increase to £11.44 an hour. For full time employees this equates to a total annual pension contribution of £1,166 a year, made up of their own 5% and their employer's 3% pension contributions.
“Allowing for investment growth and future salary increases, over a lifetime of fulltime work this could lead to an increase in future pension pot of over £37,200 - giving a total projected pension fund of £397,700.
“These new figures bring into sharp focus the benefits of paying into a workplace pension. Opting out might seem appealing for those on lower wages but the gain in take-home pay today is tiny compared to the boost to future pensions from sticking with it for the long term.”
Kate Smith also called for timetabling on the expansion of workplace pension auto-enrolment, adding: “Under 22s are currently excluded from auto-enrolment, which means that they won’t benefit from an employer pension contribution. The government intends to change this by extending auto-enrolment to all over 18s employees, but as yet there’s no timetable in place.
“Rather than kicking this into the long grass, we urge the government to implement this change sooner rather than later along with equalising the National Living Wage for the under 21s, who will receive only £8.60 an hour from this April.
“Higher pension contributions, invested over a longer period, enable employees to build up larger pension pots so they can plan for a more secure retirement.”
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