The UK Government’s auto-enrolment pension policy has been given a boost by the National Living Wage
New analysis from Standard Life suggests that working just two days a week on the new National Living Wage is enough to start pension savings through auto-enrolment. When the UK Government’s significant auto-enrolment pension policy was launched in 2012, the National Minimum Wage (NMW) for individuals aged 21 and over was £6.19 per hour, with the annual earnings trigger for auto-enrolment set at £8,105.
This meant employees needed to work approximately 25 hours per week throughout the year to be eligible for their employer’s pension scheme, provided they were aged 22 and above. Since then, increases in the Minimum Wage have outpaced rises in the auto-enrolment earnings threshold.
The UK Government has confirmed that the National Living Wage (NLW) for those aged 21 and over will increase to £12.71 from April 2026, while the annual earnings trigger has remained static at £10,000 since 2014. This change means that employees aged 22 and over now qualify for auto-enrolment by working just 15 hours per week (roughly two working days) across the year, a reduction of 10 hours compared to when the policy was first introduced, reports the Daily Record.
Retirement saving on low incomes
For many low-income and part-time workers, saving for retirement is a significant challenge amidst more immediate financial worries. Recent research from Standard Life found that only 9 per cent of low-income households consider pension saving as a financial priority over the next year, compared to 28 per cent of high-income households.
While long-term saving may not be a top priority for everyone, even part-time work can lead to substantial contributions towards a retirement fund.
An employee earning the current minimum wage and working just 15 hours per week could accumulate £818 in their pension pot through auto-enrolment within a year. This is further boosted by tax relief and valuable employer contributions.
For those in full-time employment (37.5 hours per week), around £2,030 could be added to the pension pot annually. Over their career, a 22 year old employee working full time on minimum wage could amass a pension pot worth up to £208,000, in today’s money terms, by the time they reach State Pension age.
One of the main objectives of the recently re-established Pension Commission is to address the adequacy of retirement savings among vulnerable groups, particularly low earners who are least likely to contribute to a pension.
Currently, just one in four low-income private sector workers are putting money aside for retirement.To address this problem, the Commission is anticipated to consider reforms to auto-enrolment, including reducing the age threshold for eligibility and scrapping minimum earning limits.
These modifications should make auto-enrolment more widely available and deliver a vital enhancement to pension funds. Catherine Foot, Director of the Standard Life Centre for the Future of Retirement, observed: “A rising minimum wage not only boosts pension savings through higher contributions on increased salaries, but it also makes auto-enrolment more accessible.”
She continued: “With the new National Living Wage from April, working just 15 hours a week will be enough to meet the £10,000 annual earnings threshold, enabling more people to qualify for workplace pensions and start building their retirement savings.”
The retirement expert also highlighted: “Although cost of living pressures and immediate financial concerns remain a priority for low-income and part-time workers, even a small amount saved to a workplace pension, which is boosted by valuable employer contributions, can make a meaningful difference to future retirement incomes.”
She added: “The Pension Commission will need to strike the right balance between addressing under-saving among the most vulnerable groups with the pressures facing employers with the rising cost of employment.”
