Changes to the National Living Wage and State Pension age

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Here is an important update on both the current National Living Wage, and how its going to change and the rise of the state pension age to 65 for women. This change means women now qualify for their state pension at the same age as men, after decades of different treatment…

The National Living Wage

As Living Wage Week rolls around again, The MIA’s Business Helpline partner, Croner, take a look at what the current National Living Wage is, what it means, and how it is going to change.

What is it?

First thing’s first, let’s clear up the confusion regarding the difference between the National Minimum Wage, National Living Wage and the ‘real living wage’. The terms are often used interchangeably, but there is a small difference. The minimum wage is the smallest amount employers legally have to pay to employees over compulsory school age but under the age of 25, while the National Living Wage is the minimum amount employers legally have to pay employees over the age of 25.

The real living wage is a figure calculated by the Living Wage Foundation that values the real cost of living in the UK. Sometimes this term is used interchangeably, which can cause confusion. The main difference? The National Living Wage is a legal requirement, the real living wage is not.

What is the current National Living Wage?

At the moment the National Living Wage is £7.83. The National Living Wage was first introduced in 2016 at £7.20, which then rose to £7.50 in 2017/2018.

What is the future of the National Living Wage?

In the recent budget, Phillip Hammond announced that the National Living Wage would be rising to £8.21 next April, which is a 4.9% rise.

The risks

Following the rise next April, it is crucial you conduct a review of all salaries to make sure all staff are being paid correctly, as it can be easy to slip below the threshold during this period. If you discover any of your staff are being paid incorrectly, resolve the situation immediately before it has chance to develop into a full-blown issue. Why?

Well, in the past year there have been numerous instances of ‘naming and shaming’ of employers who are incorrectly paying the national minimum and/or National Living Wage. If that isn’t scary enough, you can also be fined up to 200% of the underpayment. While there may have been some among the culprits who were knowingly underpaying their employees, most cases were a result of simple errors that pushed employees below the threshold.

Paying the living wage

Employers have two methods of paying the Living Wage – they can either sign up through the Living Wage Foundation as a Living Wage employer, in which case they become accredited. The employer then has to make certain commitments, and would be removed if they didn’t increase the living wage within the six months. Examples of organisations that have done this are Chelsea and Everton Football Clubs. Alternatively, Employers can just decide to provide the Living Wage voluntarily, but do not commit to doing so via the Living Wage Foundation and so don’t become accredited.

The living wage, as recently announced, will increase by 3.4% to £10.55 in London and by 2.9% to £9.00an hour across the country

State pension age rises to 65 for women

The state pension age for women has increased to 65, as of 6 November 2018.

This change means women now qualify for their state pension at the same age as men, after decades of different treatment.

The pension age for women has been rising gradually from 60 to 65 since 2010, under legislation passed in 1995.

These increases were then accelerated by new measures in 2011, and the state pension age for both men and women will now continue to rise, to 66 by October 2020 and 67 by 2028.

Critics have argued that the changes have been made too quickly, and that other inequalities in the pensions system mean women lose out compared to men.

Former pensions minister Ros Altmann said that while state pension ages are now the same, “equal state pension age does not mean pension equality”.

Altmann said women typically have lower pensions than men, placing them at risk of financial difficulty in retirement – especially as they also tend to live longer.

She added:

“Some of the [pension] inequalities date back many decades, but others are new problems created by recent legislation.

“The Government needs to act urgently to fix these loopholes which cause problems for so many women.”

Expert Support

If you’re unsure you are paying your employees correctly, or for assistance with any other pay & reward issue, contact the Business Support Helpline included in your MIA membership to speak to an expert.

Email alice@mia.org.uk or call 01403 800500 for the exclusive Business Support Helpline scheme number.