As millions of UK workers receive their first payslips with April’s National Living Wage increase, PensionBee urges savers to consider diverting the extra cash into their pension before it’s absorbed into everyday spending.
From April 2026, the National Living Wage for those aged 21 and over rose to £12.71 per hour - a 4.1% increase of 50p per hour on the previous year. For a full-time worker (37.5 hours per week), that amounts to approximately £81 per month in additional gross pay.
PensionBee's analysis shows that if a 25-year-old worker chose to divert this extra £81 per month into their pension, the impact over time would be significant:
- After 10 years: their pot could grow by an additional £10,502 (inflation adjusted).
- After 20 years: the extra savings could reach £23,000 (inflation adjusted).
- By retirement at age 67: that small monthly top-up could be worth around £59,505 in today’s money, thanks to the effects of compounding investment growth.
The weeks following a pay rise are a critical window for pension saving. Once extra income is absorbed into regular spending, it can become far harder to save. By adjusting pension contributions now, workers can benefit from their pay rise over the long term without ever missing the money day to day.
The case for younger workers
The effect is even more pronounced for those aged 18-20, who saw their National Living Wage rise by 8.5% to £10.85 per hour. This means if an 18-year-old diverted their 85p pay increase into a pension, their pot could grow by an additional £100,309 in today's money by retirement.
Workers must be aged 22 or over to be automatically enrolled into a workplace pension, but those aged 18 to 21 can still opt in if they meet the earnings threshold, or they can set up a personal pension and pay into that. Starting contributions earlier, even at low levels, allows compound growth to do more of the heavy lifting and helps prevent gaps in retirement savings, supporting the case for lowering the Auto-Enrolment age threshold to 18.
Maike Currie, VP Personal Finance at PensionBee, commented:
"A 50p-per-hour pay rise might not feel like much, but when it comes to pensions, there is power in small amounts, especially if regular and early on in your savings journey. If workers redirect their pay increase into a pension now, before it gets sucked up into their daily spending, they can turn even a modest wage increase into meaningful additional pension savings at retirement.
“Starting with even small pension contributions at a younger age amplifies the benefit of compound growth, and April is the ideal time to act. With the cost of living still weighing on household budgets, it might feel counterintuitive to put money away. But locking in a pension increase now, means workers can protect their future spending power rather than watching it slowly disappear.
“A few minutes spent adjusting your pension contributions this week could be one of the most valuable financial decisions you ever make."
PensionBee encourages all workers to use its Pension Calculator to see how much their April pay rise could be worth in retirement.
Notes
Table 1: Saving 50p p/h into a pension from the age of 25
Table 5: Saving 85p p/h into a pension from the age of 18
PensionBee's analysis is based on: an annual investment growth rate of 5%, compounded monthly, with contributions made at the end of each month. It includes an annual provider fee of 0.7% and an annual salary growth of 2.5%. ‘Today’s money’ assumes long-run inflation of 2.5%.
Both scenarios assume full-time work at 37.5 hours per week and a retirement age of 67.
For workers aged 21 and over, the monthly pension contribution is £81, based on a 50p-per-hour pay rise over 42 years. For workers aged 18-20, the monthly contribution is £138, based on an 85p-per-hour pay rise over 49 years.
Tax relief is not modelled separately as contributions represent gross pay diverted directly into a pension. All figures are rounded.
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