The UK Conservative party has revealed it plans to increase the national living wage to £10.50 ($12.91, €11.83) within the next five years from the current £8.21.
While this would be mean a wage increase for UK workers, it will likely lead towards people putting more money aside for retirement.
A calculation by financial services firm Quilter revealed that people could pay in an extra £333.44 into their pension through auto-enrolment.
The table below is based on a person working 35 hours a week, with the employee and employer contributing 5% and 3%, respectively, into the pension.
|Current living wage
|Potential wage increase
|Total pension contribution*
*Contributions = earnings – lower threshold of £6,136
Bang the drum
“The chancellor’s announcement that the hourly rate of the national living wage will increase to £10.50 within the next five years will feel like a significant step in the right direction for many receiving this wage,” said Jon Greer, head of retirement policy at Quilter.
“However, what they may not realise is this pay rise will also bring with it benefits for their retirement, as thanks to auto-enrolment these workers will also see their pensions contributions rise.
“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.
“It is up to the government and the industry now to keep banging the drum for pensions. 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.”