A hike in the minimum wage at next month’s Budget could ensure thousands more part-time workers are entitled to a workplace pension for the first time.
Reports suggest Chancellor Rachel Reeves will announce an above inflation rise in the minimum wage from £12.21 to at least £12.70.
Workers in the UK become entitled to be automatically enrolled in a workplace pension – with their employer paying in – once they hit the age of 22 and earn £10,000 or more.
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And a hike to £12.70 could ensure that someone working just 15 and a half hours per week on the minimum wage crosses that threshold.
The changes would mean thousands of lower-paid workers being enrolled in a pension, potentially for the first time.
Rachel Vahey, head of public policy at AJ Bell, said: “Someone working part-time for 15.5 hours a week would find their earnings increase from £9,841 to £10,236 if the minimum wage increased from £12.21 to £12.70.
“Passing this ‘earnings trigger’ would mean they could be automatically enrolled into their pension scheme, and could start saving for their future retirement income.”
A rise of this number would be just above inflation at 4 per cent. Inflation is currently 3.8 per cent.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “A rise in the minimum wage will push more part-time workers over the threshold into automatically being enrolled into their workplace pension.
“For those starting out in their career, getting started with pensions at a younger age can make a huge difference, because the miracle of compounding has the most impact when you have a longer time horizon.
“When the minimum wage rises faster than inflation, it should mean people have more room in their budgets, and thanks to the employer contribution and tax relief, a pension is a great way to get more bang for their buck.”
Once you earn over £10,000, your employer has to contribute 3 per cent of your earnings to a pension scheme as long as you contribute 5 per cent.
Contributions are based on your total earnings between £6,240 and £50,270 a year before tax.
You can opt out of paying into a pension, but then your employer does not have to pay anything either.
The £10,000 earnings trigger – above which your employer must pay into a pension scheme – has been frozen for several years, and is not expected to rise again this year.
Analysis by David Robbins, a pensions expert at consultancy Willis Towers Watson, shows that a decade ago, minimum wage workers had to work more than 25 hours per week to qualify for a pension. But several minimum wage rises, plus the freezing of the £10,000 threshold, means that has decreased and will soon be below 16 hours.
The Low Pay Commission estimated that there were around 1.9 million workers paid at or below the minimum wage in 2024, around 6.5 per cent of all UK workers.
It is not known how many people work 16 hours or less but is likely to be tens of thousands at least.
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