Election pledges to increase the national minimum wage would mean a ‘significant boost’ of around £2,000 to pension pots, due to the knock-on effect on auto-enrolment contributions, according to Aegon.

The Labour manifesto, published last week, outlined a commitment to introduce a ‘real living wage’ of at least £10 per hour for all workers over 16, while the Conservatives have pledged to raise the existing National Living Wage, in stages, to £10.50 an hour, and widen its reach to over 21s.

Currently, a 22-year old, with an average minimum wage of around £15,000 a year, could expect to pay £29.95 a month into their pension pot if auto-enrolment contribution rates remain consistent.

Aegon analysis, based on a wage growth of 3 per cent and investment growth of 4.25 per cent after charges, has shown that this could equate to a pension pot of £4,410 over a five-year period.

Assuming a minimum increase to at least £10 per hour for workers aged over 21 from the current £7.70 per hour (increasing to £8.21 at 25), this same pension pot would be boosted by almost £2,000 after five years, representing a total pension pot of around £6,350.

Commenting on the election pledges, Aegon pensions director, Steven Cameron, stated: “Clearly, this will deliver benefits to take home pay, but what may be less obvious is it will also deliver future benefits in terms of pensions.

“For example, if the minimum wage were £10 an hour for a 22-year-old, their pension pot after five years could be around £6,350, almost £2,000 higher than that for someone on minimum wage today.

"With the potential for more than 40 years of investment growth ahead, that could make a big difference at retirement.”

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