KAROL WAS born in New Zealand but has lived in the UK for 14 years, and intends to stay here. She is a basic rate taxpayer and has approximately pounds 500 per month of surplus income after accounting for all expenses.

She currently rents a house and would like to buy a property, but feels that now is not a good time as she believes house prices are currently too high.

Karol has pounds 31,000 in a building society account and no other investments apart from 100 Abbey National "windfall" shares. She has no loans or debts. Her employer provides a generous benefits package, including a non-contributory pension scheme, permanent health insurance, death-in-service benefit (life assurance), and private medical insurance.

Karol has very little in the way of provisions for retirement. She contributed pounds 100 per month into a personal pension plan for a few years up until about a year ago. This area is Karol's main concern, and as she is well aware that significant commitment will be required to provide a reasonable standard of living in retirement.

In addition to retirement, Karol is interested in making her capital work harder for her. She would also like to utilise her surplus income more effectively than just topping up the building society funds.

The adviser: Andy Harris is a director at Maddison Monetary Management, independent financial advisers, 44 High Street, Bagshot, Surrey, GU19 5AP (Freephone 0800 074 2233).

The advice: Karol has recently been advised by a representative of an insurance company to invest into a PEP and a Tessa. Both these investments could make sense.

However, she has also been advised to invest into a Maximum Investment Plan (MIP) with the same company. A MIP is an insurance-based, regular savings plan, with a minimum term of 10 years. This product would not necessarily be appropriate to Karol's needs because a MIP has an element of life assurance built in, and this life assurance obviously has to be paid for (deducted from premiums).

As Karol is single, with no dependants and no liabilities, she has no need for life assurance. She would therefore be paying for something which is not needed. The charges also tend to be significant on these types of contract.

As far as planning for retirement is concerned, Karol should join her company's pension scheme in April 1999, when her employer allows her to. In addition, she should consider making additional voluntary contributions (called AVCs) or free standing additional contributions (known as FSAVCs) to top up her pension.

AVCs are provided by any employer offering a company pension scheme. FSAVCs are available from insurance companies. When deciding on which route to take, a major consideration is charges. FSAVCs generally have higher charges than AVCs, but are less flexible and generally give less investment choice. Karol can contribute to one AVC and/or one FSAVC so a combination could be the solution.

As Karol cannot join her company scheme until April of next year, she is unable to contribute to an AVC or FSAVC until then. She would therefore need to start contributing to a personal pension plan in the meantime. Karol would need to ensure that the pension chosen can be "converted" to a FSAVC next year without further charges.

If it is decided to go for an AVC from her employer next year, a single contribution might also be made into a personal pension from Karol's existing capital. She can currently contribute up to 20 per cent of her earnings in the current tax year.

As for investments and Karol's current capital in the bank, the first thing to consider is a "cash reserve', a fund with instant access, and therefore available for any emergencies or opportunities which may arise. In Karol's case, I would suggest at least pounds 3,000.

The next consideration is that Karol does intend to buy a property within approximately one year; a deposit would therefore be required. Karol is comfortable allowing for a 10 per cent deposit on a property costing around pounds 80,000. She should therefore retain pounds 10,000 (this would also cover costs) in her building society account.

As previously mentioned, a PEP makes good sense. Karol can invest pounds 6,000 into a "general" PEP (investing in unit or investment trusts). Consideration would need to be given to the type of fund chosen, as Karol would only be comfortable with a medium-risk one. This also means that the pounds 3,000 which can be placed into a single company PEP would not be appropriate, as investing in any one company is too risky for Karol.

The Tessa also makes sense, especially as the rules of the forthcoming ISA will allow any Tessa already opened to be fully funded for the full five-year term. This means that up to pounds 3,000 can be invested in year one, followed by up to pounds 1,800 in the following years, subject to a pounds 9,000 overall limit. The money she can set aside from her income could be invested into unit trusts on a monthly basis. These would be less costly than Maximum Investment Plans (MIPs), and don't have unnecessary life assurance attached.

Karol is very fortunate that her company provides permanent health insurance, private medical cover and death-in-service benefits. As she has no dependants, there is no need for further life assurance currently. Obviously, this may change when she buys a property, or if her circumstances change.

She may wish to consider implementing some critical illness cover (CIC). This is an insurance which will pay out a lump sum upon diagnosis of one of a number of major illnesses. This is the one area where she is unprotected, and could prove to be useful to her in a way that life cover simply would not be.