Thousands of part-time workers to get £4,521 ‘free cash’ pension boost within weeks – are you one of them?

THOUSANDS of workers are set to get a major boost to their savings on top of a pay rise coming in weeks.

Millions of people will get up to £1,800 a year more in April when the minimum wage increases.

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For those over 21, the National Living Wage will rise from £10.42 to £11.44.

Almost three million workers will get around a 10% boost to their pay packets.

On top of that, thousands of workers will also get a boost to their pension worth £4,521.

That’s because they will be automatically enrolled in a workplace pension for the first time.

The threshold at which you start paying in is set at earnings of £10,000 a year.

Anyone working 17 or 18 hours a week will go over this after the rise in wages and start saving for retirement.

Steve Webb, partner at consultants LCP, and former government pensions ministers, who crunched the figures for The Sun said: “The big increase in the living wage this April will take the wages of thousands of part-timers over the crucial £10,000 threshold. 

“At this point their employer will be required to enrol them into a pension and make a contribution. 

“This could be an important first step on the road towards building up a decent pension pot and – most importantly – having enough set aside to be able to afford to retire at a decent age rather than work until you drop”.

Auto-enrolment rules were first introduced in 2012 and there are now 10.7million people who pay into a workplace pension.

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It’s different to the state pension which is based on National Insurance contributions.

Both workers and employers pay into the workplace pension totalling 8% of salaries.

Employees put 5% and the company at least 3%, though some do offer more.

Those working 17 hours a week are currently earning £9,211 a year. But come April’s National Living Wage rise, they will be earning an annual salary of £10,113.

For those working 18 hours as week it will rise from £9,753 to £10,708.

Extra pension contribution from their employer will be 3% of their “qualifying earnings” – that’s anything over £6,240.

That means 3% of your salary over this amount is eligible for pension contributions from your employer.

On a £10,000 salary, that means £3,760 qualifies for 3% contributions – equivalent to £112.80 a year.

Over 40 years that adds up to £4,512 – and that’s before taking into account any investment growth.

Meanwhile full-time workers on the National Living Wage will be saving an extra £150 a year for their retirement too.

At the time the wage increase was announced in the Chancellor Jeremy Hunt‘s Autumn Statement, Kate Smith, head of pensions at Aegon said: “A hidden benefit is that the increase in the National Living Wage will also have a positive impact on pension contributions, enabling employees to build up larger pension pots for a more secure retirement.

“As a result of the increase in the National Living Wage, an increase to £11.44 an hour (£20,820 a year) means employees on the National Living Wage will benefit from a total annual pension contribution of £1,166 a year, made up of their own and their employer’s pension contributions, meaning almost an additional £150 going into an individual’s pension over the course of a year.”

Over the course of 40 years that’s an extra £6,000, again not taking into account investment growth.

The National Living Wage will apply to 21 and 22-year-olds for the first time from April too.

Currently it is for over 23s and younger workers aged 21 and 22 are paid at least the National Minimum Wage of £10.18.

Those aged 22 are among those who will benefit from the pension boost too.

But those aged 21 will not as pension auto-enrolment starts from the age of 22.

Younger workers can decide they want to pay in to a workplace pension but they will need to opt in.

There have been proposals to reduce the minimum age from 22 to 18 to ensure that young people start saving for retirement sooner.

The state pension alone, worth £11,500 a year from April, is not enough alone to live on.

Auto-enrolment was brought in to ensure millions more people avoid living in pensioner poverty.

The latest figures from the Pension and Lifetime Saving Association suggest anyone retiring now needs at least £14,400 a year income, or £31,300 for a moderate lifestyle.

This would require pension savings of between £40,000 and £70,000, and £300,000 and £500,000 respectively.

The figures are based on an annuity, a financial product which gives a regular income from your savings, though there are other ways to take your pension.

For a comfortable retirement, which includes holidays abroad, you need an income of £43,100 a year – a total savings pot of £490,000 to £790,000.

This post first appeared on thesun.co.uk