Hidden Autumn Statement detail means millions of hard-up workers will get £134 free cash boost every year
A HIDDEN detail in the Autumn Statement has revealed that millions of hard-up workers will get a £134 pension cash boost each year.
A rise in the minimum wage rate announced in Jeremy Hunt's fiscal statement means that workers will be able to save more for later life.
The Chancellor revealed plans for a 10% hike, which will see the threshold rise from £9.50 to £10.42 an hour in April.
While workers will feel the rise in their monthly pay packet, they'll also get a boost when it comes to saving for their pension.
Also announced in the Budget was:
- Up to £1,350 in cost of living payments
- Pension triple lock to stay in £870 boost for seniors
- Benefits including Universal Credit and pension credit to rise with inflation
- New work coach requirements for Universal Credit
- Social housing rents to rise 7%
- Freeze on income tax and National Insurance thresholds
- Stamp duty cut to end in 2025
- Typical energy bills to be capped at £3,000
- Minimum wage to rise to £10.42 an hour
The minimum wage hike will benefit those who are on an auto-enrolled pension plan with their employer.
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You are auto-enrolled into a workplace pension if you earn over £10,000 a year, are over 22 and below state pension age - benefiting millions of workers.
You pay the minimum contribution of 5% of your earnings into the pot, though you can put in more.
Plus, you also get cash from your employer of 3%, though some employers put in more - it depends who you work for.
It means as your wage goes up, the amount you're saving into your pension pot will go up too.
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Those working full-time and earning the national living wage under the current rate of £9.50 see £884 in total will be putting into their pension pot per year.
But with the threshold rising, workers will be able to stash away £1,018 in total a year from April - a rise of £134, according to Aegon research.
Aegon head of pensions Kate Smith said: "With compound investment growth over many years even a small increase will prove very beneficial to future retirement savings, especially for those early in their careers."
How does an auto-enrolment pension pot work?
Auto-enrolment is when you're automatically placed into your workplace pension scheme, with your contribution deducted from your pay packet.
Bosses have had to automatically enrol staff into pension schemes since October 2012 to get workers saving for their golden years.
Once you earn over £10,000 you start paying into a pension automatically, unless you opt out.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying at least 3%.
Your minimum contribution applies to anything you earn over £6,240 up to £50,270 and that will stay the same in 2022-23 too.
Those earning more than £12,570 also get extra cash on top through tax relief.
A loophole that means some workers earning between £10,000 and £12,570 miss out on tax relief will be closed from 2024 giving another boosts to retirement savings.
Importantly, the contribution you make as an employee is deducted before tax - so the actual amount you're putting away is less than it sounds.
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For example, if you pay 20% tax on your earnings, and your pension contribution is £100, this only really costs you £80 as this is how much that amount would have been worth after tax.
While opting out of a workplace pension would increase your monthly salary, it's best to only do this as a last resort, as you'll have less in later life.