The minimum wage for over-21s will go up by 50p an hour to £12.71 in April 2026 from its current level of £12.21, the Chancellor Rachel Reeves said yesterday.

The change, announced ahead of today’s Budget, will have a positive impact on pension contributions, according to retirement specialist Ageon.

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.”

She said that as a result of the increase in the National Living Wage, an increase to £12.71 an hour (£23,133 per year) means employees on the National Living Wage will benefit from a total annual pension contribution of at least £1,850.56 a year, made up of their own and their employer’s pension contributions, meaning roughly an additional £72 going into an individual’s pension over the course of a year.

Ms Smith said: “Many employees may receive more into their pension if their employer pays higher pension contributions than the auto-enrolment minimum. This may not seem much, but the earlier and longer pension contributions are made the bigger the likely pension when individuals come to retire."

Millions of low workers will benefit from a pay increase from next April. With over 21’s benefitting from an increase of just over 4% - taking their hourly wage up to £12.71.

For workers aged 18 to 20, the minimum wage will rise to £10.85, an increase of 85p.

The government wants to eventually scrap the separate rate for this age group, creating a single minimum wage for all adults.

For 16 and 17-year-olds and apprentices, the minimum wage will increase to £8 an hour, up from £7.55.

Ms Smith added: “Although the rise will be welcome, it is less than the 4.8% triple lock uptick state pensioners will receive at the same time. It also falls short of the real Living Wage, which is currently £14.80 an hour in London and £13.45 in the rest of the UK - which many employers have signed up to.”