Budget confirms 'hidden' pension benefit which will give cash boost for millions

The minimum wage increase announced this week has a "hidden" pension benefit, experts have pointed out.

Chancellor confirmed this week that the National Living Wage was going to rise from £11.44 to £12.21 from April next year. Working 35 hours a week at this new rate would give you £22,222 a year with the government saying it will give the average worker an extra £1,400 a year.

The minimum wage will also be going up from £8.60 to £10 an hour for those aged 18-20 and from £6.40 to £7.55 for apprentices and those under 18. This is a 16.3% and 18% rise respectively.

However, Kate Smith, Head of Pensions at Aegon, says there is also another "hidden" benefit from the increase, which concerns your . The pensions expert says that the boost will, of course, bring "much-needed financial relief" for earners, but it will also help boost your pension pots too.

She said: "An increase to £12.21 an hour means employees on the National Living Wage who are 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, meaning an additional £112 going into their pension over the course of a year.”

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Kate noted that the government is considering plans to expand the pension auto-enrolment scheme to employees under 22 who are currently excluded from pension savings. She added: "These increases in minimum wages make this even more pressing, as currently, under 22-year-olds are missing out on what would be a valuable employer pension contribution.”

“While welcome, the new minimum living wage still falls short of the real Living Wage which many employers have signed up to, at currently £13.85 an hour in London and £12.60 an hour for the rest of the UK.”

If you are under 22 and are earning more than £6,240 a year, you are able to opt into your employer's workplace pension scheme. Once you do, you’ll be entitled to the minimum level of employer contributions. If you earn less than £6,240 you can ask your employer to give you access to a pension to save into. They have to do this – and to arrange for you to join. But they don’t have to contribute to it.

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