The increase in the minimum wage — now called the National Living Wage — announced in today’s Budget, should see more money heading into auto-enrolment pension funds.
Chancellor, Rishi Sunak, confirmed that the National Living Wage would increase from £8.21 to £8.72 an hour for those aged 25 or over. This is a 6.2 per cent increase, and will be effective from April 1 2020.
There are also increases to the rates that apply for those aged under 25 and those who are working as apprentices.
Sunak also set out a new remit for the Low Paid Commision and proposed by 2024, this NLW should be equivalent to two third of median earnings – which at current rates would give an rate of £10.50 an hour.
There are other changes that will also have some impact on the pension industry. The government also confirmed it is increasing the threshold for when national insurance becomes payable to £9,500.
Aegon’s pension director Steven Cameron says: “This is good news, saving 31m people across the UK up to £104 a year.”
He adds: “What’s doubly welcome is the confirmation that those taken out of paying NI won’t lose out on credits towards their state pension.
“Anyone earning above this lower earnings limit (LEL), which will increase with inflation from its current level of £6,136 will still be entitled to a year’s credit.
“This is important because people need at least 10 years’ credits to receive any state pension and 35 years to receive the full state pension which is expected to rise to £175.20 a week from April. Without this provision, people might have gained from paying less NI today only to suffer from a reduced state pension in future.”
Although it was not in his speech to Parliament, the budget also called called for further evidence on tpensions tax relief administration, which will cover the current net pay anomaly.,
Smart Pension director of policy Darren Philp says: “We welcome the review that was promised in the manifesto.
“It is just not right that 1.7m low paid individuals are being hit in the pocket due to a quirk in the pensions tax relief system. When the government introduced auto enrolment they made it clear that people would benefit from a contribution from the government if they were auto enrolled. This review needs to deliver on that commitment.”
The post Budget 2020: Changes to pay and NI signal higher pension contributions appeared first on Corporate Adviser.