Thousands of Britons to get ‘hidden’ £37,200 pensions boost with pay increase | Personal Finance | Finance
The increase in the National Living Wage will bring an unseen boost to the pension contributions of many working Britons.
The wage is to increase 9.7 percent from the start of April, rising to £11.44, with the scheme also to be extended to workers aged 21 and 22.
Pensions experts at Aegon have calculated that on top of the immediate pay boost, workers could also see their pension pots boosted by £37,200 as a result.
Kate Smith, head of Pensions at Aegon, said: “This 9.7 percent 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 five percent and their employer’s three percent 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.”
The group also called for a timeline for the Government’s plans to expand auto-enrolment to all employees aged 18 and over.
Ms Smiths said: “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.”
The expansion of auto enrolment will also mean all a person’s income is eligible for the scheme rather than earnings above £6,240 a year.
Rachel Vahey, head of policy development at AJ Bell, said: “This could provide a boost of over £120,000 to someone’s pension pot over the course of a 50-year career, depending on investment growth.
“The best bit is that the employer must pay at least £187 of this, meaning everyone with a standard workplace pension that meets minimum requirements will get more money toward their pension from their employer.”
For the latest personal finance news, follow us on Twitter at @ExpressMoney_.
