As individuals embark on a new year, resolutions often include commitments to improve financial well-being.
In line with this sentiment, PensionBee, a leading online pension provider, has outlined four key pension priorities for 2024 that can pave the way for a financially secure retirement.
Understanding Your Pension Scheme is Key
The first priority emphasised by PensionBee is gaining a comprehensive understanding of your pension scheme. Knowing the type of pension you hold, be it defined benefit or defined contribution, is crucial for effective retirement planning. Defined benefit schemes offer a predetermined payout based on earnings, common in the public sector, while defined contribution schemes build a retirement ‘pot’ from contributions made by both the individual and their employer.
Pension contributors are urged to be aware of the method through which contributions are made, whether via net pay, relief at source, or salary sacrifice. This understanding is vital as different tax implications accompany each method, impacting the overall growth of the retirement fund.
Becky O’Connor, Director of Public Affairs at PensionBee, stressed the significance of this knowledge, stating, “It’s amazing how easy it is to go through your entire working life without ever actually knowing how your pension works. But not understanding the type of scheme you have or how it works can leave you at risk of missing out on free cash, such as more tax relief or lower tax bills.”
Calculate and Plan Ahead
The second priority encourages pension holders to use tools like PensionBee’s pension calculator to estimate their future pension amount based on current contributions and market conditions. Consideration of retirement living standards provided by trade bodies such as the Pension and Lifetime Savings Association can also guide individuals in assessing their financial needs during retirement.
Becky O’Connor advises, “It’s a good idea to add up how much you already have across different pensions and if they grow by a realistic amount before your planned retirement date, how much you are likely to have when you retire. Then you will know if you can carry on as you are or if you need to think about increasing contributions.”
Maximising Contributions for a Bigger Pot
PensionBee urges contributors to evaluate the possibility of increasing their contributions, even by a small percentage or fixed amount, emphasising the concept of marginal gains. An increase of just 1 percent or a fixed amount like £50 monthly can significantly impact the eventual pension pot, showcasing the importance of consistent and strategic contributions over time.
Becky O’Connor emphasises, “Marginal gains theory really comes into its own with pensions. Small improvements in your contributions can make a huge difference to your overall pot size when you retire and the earlier in working life you make them, the better, thanks to the power of compound returns.”
Setting Up a Pension for the Uninitiated
The fourth priority is directed at individuals who currently do not have a pension, particularly the self-employed. PensionBee encourages those who missed the auto-enrolment phase to consider opening a personal pension. Even without employer contributions, the tax relief provided by HMRC remains a significant incentive for individuals to start contributing.
Becky O’Connor notes, “Even without employer contributions, pensions are still worth having if you’ve never managed to pay into one before, because the tax relief added to your contributions still provides a significant additional boost to what you pay in.”
By prioritising these key actions, individuals can pave the way for a financially secure and prosperous retirement in 2024.
Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at the University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.