Name: Heike Gerhards

Age: 32

Occupation: German language tutor

The problem: Heike has a property with a market value of approximately pounds 60,000, on which she has a repayment mortgage of pounds 42,000 with NatWest. She currently pays about 8 per cent interest.

Heike is self-employed and consequently has a small personal pension, into which she pays pounds 50 a month. She wonders whether this will be enough to sustain her at retirement.

She is also concerned that the money she sets aside to pay her tax liabilities is not earning enough interest. She would also like advice on income replacement policies in the event of falling ill, plus private medical insurance cover, in that order. Finally, Heike wants advice on any other investment opportunities available to her.

The adviser: David Holland, an independent financial adviser at RK Harrison Financial Services, The Maltings, Lurke Street, Bedford, 01234 305555.

The advice: As far as her mortgage is concerned, Heike could consider a remortgage, taking advantage of Alliance & Leicester's two-year fixed interest rate, which at the time of writing stands at 4.75 per cent, where the valuation fee is refunded on completion. There is a 0.5 per cent arrangement fee, pounds 210 in her case, and an early redemption penalty in the first five years equivalent to six months' interest. This could lead to a potential saving of around pounds 70 per month The potential saving over two years would be pounds 1,680.

Although the availability of mortgage offers changes rapidly and Alliance & Leicester's deal may no longer be an option, there is no doubt that Heike could obtain a better deal than is otherwise available to her from NatWest.

Heike's current level of pension contributions, pounds 50 per month, would lead to a fund value of pounds 70,880 at 60, based on an assumed net growth rate of 8 per cent per annum. Up to 25 per cent could be taken as tax- free cash. If the whole of the retirement fund were to be applied to purchase an annuity, based on a single life female aged 60, where the annuity is payable monthly in advance and rises in value by 4 per cent a year compound, the initial gross annual pension would be pounds 3,972.

The pension referred to above would represent about 4.05 per cent of her projected earnings, assuming her income rises by 5 per cent a year, compound.

I calculate that for Heike to achieve a target pension equivalent to 50 per cent of her projected income at age 60, she will need to increase her monthly contributions to 21.5 per cent of her rising earnings. Unfortunately, even if she could afford this, her current personal pension allowance would restrict contributions to pounds 365 per month, or 17.5 per cent of earnings.

I understand that Heike is investing in Legal & General's Managed Fund, which over one year to 31 October 1996, on an offer-to-offer basis with gross income reinvested, achieved a return of 12.59 per cent against a sector average of 12.09 per cent.

Over five years, Legal & General achieved 12.99 per cent on an annualised basis against a sector average of 13.41 per cent. Legal & General's investment performance is average; it does, however, have an enviable reputation for tracker funds and it is understood that its new Managed Tracker Fund should be available to personal pension policyholders some time this year.

For private medical insurance, Royal & Sun Alliance offers the best terms for the most common "Scale B" type of policy, with full out-patient and in-patient cover at pounds 36.54 per month. The best terms for in-patient only cover are from Norwich Union Personal Care at pounds 18.55 per month. This would, however, have a two-year claims moratorium in respect of pre-existing conditions.

Permanent health insurance (PHI) for a female aged 33 next birthday, who is a smoker, with cover to cease at age 60 and a deferred period of 13 weeks before benefits kick in, would cost pounds 70.44 per month from Friends Provident under the company's Increasing Claim Plan. This would provide a benefit of pounds 1,330 per month, or 63.86 per cent of salary (the maximum available).

Under the Increasing Claim Plan, the benefit will increase at 5 per cent per annum compound, the first increase taking place when a claim has been in course of payment for one year. At the termination of the claim, the benefit will revert to the original level.

However, PHI cover is quite expensive and while it provides valuable protection, at nearly 3.4 per cent of her gross income, she may consider the cost too high.

A cheaper option is critical illness insurance, which pays out a lump sum on diagnosis on a number of life-threatening or crippling illnesses, including strokes, cancer or heart attacks. The most competitive quote on cover of pounds 50,000, for a smoker from 32 up to age 60, would be pounds 19.98 a month from Scottish Mutual. This premium is reviewable after a few years, however. GA Life offers the best guaranteed premium for the same cover at pounds 23.60.

Heike should check to ensure that she has premium waiver benefit on her pension contributions which will provide protection in the event that she is unable to maintain contributions during sickness or accident.

Heike has around pounds 10,000 invested in a NatWest High Income Account; she may wish to consider an instant access account through Scottish Widows (Postal) which currently gives gross interest of 7.1 per cent on deposits above pounds 10,000. Alternatively, Alliance & Leicester's 1st Class Instant Account pays 7.5 per cent gross on the same sum, although only three withdrawals may be made per year.

Finally, if Heike has not made a will, her property could end up in the hands of people she would have no wish to benefit. A will can ensure that her estate is distributed in accordance with her wishes and avoids the potential for posthumous squabbles.