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Minimum wage hike underscores ‘pressing’ need to extend auto-enrolment

by Benefits Expert
26/03/2025
HR automation, AI wellbeing, stress, mental health, job transformation
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Next month’s increases in the minimum wage make opening up auto-enrolment to employees under 22 “even more pressing”, according to Kate Smith, head of pensions at Aegon.

Her comments came ahead of changes to the national living wage (NLW) and minimum wage set to come in on 1 April, 2025.

The NLW will increase by 6.7 percent to £12.21 per hour for workers aged 21 and over.

Smith said the rises bring with them a “hidden pensions benefit” of £112 a year in additional pension contributions.

However, while workers aged 18 to 20 are set to receive an even bigger rise of 16.3 percent, as their hourly rate increases from £8.60 to £10, they are currently not eligible for pension auto-enrolment, so won’t automatically benefit from a similar pension bump.

Smith said: “From April, all workers aged 21 and over, and on the lowest incomes, will benefit from a salary increase, as the NLW rises by a massive 6.7 percent to £12.21 per hour, boosting their spending power and going some way to alleviate the ongoing burden of rising living costs.”

She said that the increase for workers 21 and over is almost four times last September’s inflation rate (CPI) of 1.7 percent, which is the figure used to increase most other benefits. 

“It’s also over double the current inflation rate of 2.8 percent, announced today,” she added.

“There’s also a hidden pensions benefit to increasing the NLW, as it’ll have a positive impact on pensions contributions and enable employees to build up larger pension pots,” Smith explained.

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“The increase to £12.21 an hour (equating to £22,222 a year based on a 35 hour working week) means employees on the NLW that have been auto-enrolled into a workplace pension will benefit from a total annual pension contribution of £1,278 a year, made up of their own and their employer’s pension contributions. That’s an additional £112 going into their pension over the course of a year.”

The minimum wage for under-20s and apprentices remains lower than the new NLW, but in percentage terms the upcoming increases are even larger. Workers aged 18 to 20 will receive a 16.3 percent, while 16 to 17-year-olds and those receiving the apprentice rate get the largest boost of 18 percent, pushing their hourly rate to £7.55.

Smith said: “These uplifts reflect the government’s aim to equalise the minima for all adults regardless of their age.

“Longer term, the government is also considering opening up pensions auto-enrolment to employees aged under 22, who are currently excluded. These increases in minimum wages make this even more pressing, as many under-22s are currently missing out on what would be a valuable employer pension contribution and part of their remuneration package.

“Despite the increase, the new NLW still falls short of the real living wage, which many employers have signed up to pay and currently stands at £13.85 an hour in London and £12.60 an hour for the rest of the UK.”

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