Published On: Mon, Apr 1st, 2019

National Living Wage: The HIDDEN pension benefit in today’s rise | Personal Finance | Finance

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For those employed and over the age of 25, the National Living Wage is increasing from £7.83 to £8.21 per hour. An estimated 1.8 million workers are earning the National Living Wage, which as of today equates to £14,942 for workers over the age of 25 – a boost of £690 from last year. But the financial lift to worker’s wallets is not the only benefit from this change to pay. Savers will enjoy the money boost all the way into retirement, with increased contribution to their workplace pension coming into play from 6 April, 2019.

For those signed up to an auto-enrolment pension scheme, workers and employers will both be required to put away more into a pension pot.

The minimum contributions are set to rise from 5 percent to 8 percent, with employees paying in 5 percent and employers contributing 3 percent.

This is up from rules of current schemes which see workers contribute 3 percent and employers paying in 2 percent.

Pension, insurance and investment company Aegon estimates an employee on the National Living Wage who is in a workplace pension scheme will have a pension contribution of £704 in the coming year, an increase of £293 compared to last year.

For someone joining a workplace scheme at 25 on national living wage, Aegon analysis shows that by the time they reach state pension age, they could have built up a pension fund of over £238,000.

Their calculations are based on a 25-year-old contributing for 43 years to a workplace pension – a state pension age of 68.

Steven Cameron, Pensions Director at Aegon, said: “Individuals working for employers paying the national living wage will welcome the increase in their hourly rate.

“What they may not realise is that as a result of automatic enrolment, they will also benefit from an increased contribution being paid into their workplace pension scheme.

“The combined contribution from employer, employee and Government tax bonus rises to 8 percent on 6 April meaning £704 going into their pension this year.

“It’s important to make the most of this employee benefit as over a working lifetime, even the minimum auto-enrolment contributions can build up a substantial fund of more than £238,000 by state pension age.”

It is not just over-25s who will receive a financial uplift.

Workers in the 21 to 24 bracket will receive £7.70, up from £7.38.

Those aged 18 to 20 will receive £6.15 and under 18s will receive £4.35.

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