Ellason lens on… The 2025 Real Living Wage and Living Pension
Thu 24, October
On 23 October 2024, the Living Wage Foundation announced that the 2025 Real Living Wage (‘RLW’) will increase by 5% from £12.00 per hour to £12.60 for employees outside of London and by 5.3% from £13.15 to £13.85 for those in London. These figures are calculated by the Resolution Foundation and are overseen by the Living Wage Commission. Accredited Living Wage Employers, of which there are over 15,000 (including half of the FTSE100), are expected to implement the new rates as soon as possible, and by no later than 1 May 2025.
The RLW differs significantly from the government-set National Living Wage (‘NLW’) of £11.44 per hour (for workers aged 21 and over). The NLW is based on a target of 66% of the median UK salary and does not factor in regional differences, whereas the RLW is based on the cost of a basket of essential goods, which is not addressed in the government rate calculations. A worker outside of London will receive £2,262 more than the legal minimum if they work for a Living Wage-certified employer; in London this figure is higher at over £4,700.
A Living Pension accreditation was launched in 2023 after the Resolution Foundation conducted research that showed 95% of low-paid workers are not saving enough to have an acceptable standard of living in retirement. In 2024, the annual saving benchmark required for accreditation is £2,950, equating to 12% of the full time RLW salary. This can be paid in full by the employer, or split between the employer and the employee. For accreditation to be earned, the Living Pension must apply to all directly-employed staff. Over time, this will be extended to third-party-contracted staff within scope of the Real Living Wage. As part of the accreditation process, employers must agree to provide an annual Living Pension communication to all employees.
Ellason commentary: The 5% increase in the Real Living Wage, against a backdrop of c.2-3% inflation in the British economy, suggests that the gap between wage growth and inflation continues to reverse.
Proxy advisors in Britain expect executive salary increases to be no more than those awarded to the wider workforce of the company. However, companies with low-paid workforces will need to be careful that the significant increase in the RLW does not necessarily flow through to senior-executive salary inflation, with perhaps the ‘workforce’ benchmark used for the senior staff to exclude those on RLW.