Increasing the national living wage to an hourly rate of £10.50 would result in a pension boost of £333, according to calculations from Quilter.
Chancellor of the Exchequer Sajid Javid announced yesterday (September 30) at the Conservative Party conference that the government aims to raise the national living wage to match two-thirds of median earnings over the next five years.
This would mean an increase from the current £8.21 to £10.50, according to current forecasts.
“We will make the UK one of the first major economies in the world to end low pay altogether,” Mr Javid said in his speech.
According to calculations from Quilter – based on a 35 hour week and holiday pay – the salary of an individual on the national living wage would increase from £14,942 to £19,110.
Considering auto-enrolment’s minimum contributions of 8 per cent, the total annual pension payments would rise from the current £704.48 to almost £1,038.
Jon Greer, head of retirement policy at Quilter, noted that individuals receiving the national living wage may not realise that this announced pay rise will also bring with it benefits for their retirement.
He said: “Not only will they be putting more money away for retirement, but it also means their employers and the government, in the shape of tax relief, will top these contributions up by more too.
“This could result in an extra £333.44 each year being saved for retirement by someone on the national living wage at its new rate.
“This is a fairly substantial increase and shows, along with the power of long-term investing, that pensions continue to serve an essential purpose in today’s society.”
Mr Greer added it was up to “the government and the industry now to keep banging the drum for pensions”.
He said: “The government has done an admirable job so far in highlighting the benefits of auto-enrolment, and it is crucial that it continues its campaign to increase the visibility of pensions, and ensure this new generation engage as early as possible to help eliminate any negative feelings towards saving for retirement.”
However, not all are supportive of the proposals.
The Federation of Small Businesses warned the pledge would be a challenge for small employers.
National chairman Mike Cherry said: “While it is welcome that the chancellor is giving businesses five years to adapt, this increase will leave many small employers struggling and, without help, could make some small firms unviable.
“Four in ten small employers say operating costs are rising due to employment costs."
He called on the chancellor to uprate the Employment Allowance introduced by George Osborne to bring down the costs of employment.
He added: “Any drop in age eligibility for the National Living Wage should be gradual. A sudden drop to 21 poses a real risk to jobs and the economy."