How to (Try to) Plan for Tomorrow

Written by Karen Bryan

Deciding how to plan for tomorrow can be tough. Especially with today’s high unemployment, job insecurity, pay freezes, uncertain stock market pensions, ever increasing state pension age, low interest rates and rising inflation. Although, at times, it may seem hard enough to get through today, I still believe that you should try to make some financial provision for tomorrow to help you achieve what you want from life.

I think that it’s always wise to have some savings, as you never know when you might need them, e.g. if you get married, want to buy a home, start your own business, have kids or supplement your pension.  We’ve advised our twin sons, who are 24, to save up money for the future. They may wish to buy a home at some stage and will require a 25% deposit to get a good deal on a mortgage.

Then the next question is “Where Should I Save?”. Do you opt for a fixed or variable rate savings account or do you take a risk for a higher potential return (or loss) by share dealing? You should definitely open a Cash ISA to get the interest on your savings tax free.

I think that trying to build up a pension to supplement the state pension is crucial, if you want to maintain a reasonable standard of living into retirement. If your employer has a defined benefit salary scheme, where your pension is based on your pay and the number of years that you work, look into joining it and paying the maximum contributions. My husband was glad he had paid the maximum into a final salary pension scheme, as he was able to retire early.

The new National Employment Savings Trust (NEST) scheme is being phased in from 2012. Workers earning over the tax threshold will be automatically enrolled in this and pay 4% of their earnings into the scheme. Their employers will have to pay 3% of employees annual earnings into the scheme and the taxman another 1%. If I were an employee without access to a defined benefit pension scheme, I’d participate in the NEST scheme mainly because of the employer and the tax free contributions, even though the value of my pension would be related to stock market at the time I retired.

You also need to think about how to earn an income, especially as the number of permanent jobs for life is declining. I took the route of self employment but that’s not viable for everyone.