FINANCIAL MAKEOVER: Wanted: savings that stand in for earnings

A retired couple receive advice on boosting the income from their investments

THE DOYLES: Mr and Mrs Doyle are both aged 56. Mr Doyle retired early on medical grounds 10 years ago, Mrs Doyle has just taken early retirement.

Pension and benefits: Mr Doyle receives pounds 1,200 a year of pension from his former employer, the hotels and leisure group Granada. He also receives disability and mobility allowances of pounds 2,820 a year. Mrs Doyle has a pension of pounds 3,144 and receives unemployment benefit of pounds 30 a week, although she does not expect this to continue for long.

Mortgage: pounds 8,100 of a repayment mortgage outstanding, due to be paid off in four years. Monthly payments (comprising both interest and capital) are pounds 108. The property, in Cheshire, is worth around pounds 120,000; the Doyles also own a couple of acres of adjoining land.

Investments and savings: Mrs Doyle recently inherited pounds 50,000, which is currently in a postal deposit account. The Doyles also have pounds 13,000 in ordinary instant access accounts, and Mr Doyle has pounds 6,000 in a tax- free Tessa. Mrs Doyle has pounds 48,000 in just three shares, pounds 40,000 of which is from a share incentive scheme with a former employer. Mr Doyle has pounds 2,780 of Granada shares.

Mr and Mrs Doyle want to increase the income from their savings and investments while achieving some capital growth. They are concerned that the value of their savings keeps pace with inflation in case either should need nursing care later on.

What should they do?

The Doyles are already aware of the virtues of shares for long-term saving but their money is in just four different shares - a riskier investment strategy than is necessary. To get a greater spread of investments and so lower the risks of one bad share, while also fulfilling their desire for income, the Doyles should look at investing the bulk of the pounds 50,000 inheritance in income-oriented UK unit trusts.

At the same time, Mrs Doyle should take out a Tessa. She can invest pounds 3,000 in year one, rising to a total of pounds 9,000 over five years. One Tessa worth considering is that offered by the Principality building society, which pays a reasonable 6.8 per cent interest and has low penalties should Mrs Doyle want to transfer her money to another bank or building society if the Principality starts to look uncompetitive.

Personal equity plans will also give a tax-free income and the Doyles should consider putting pounds 6,000 each into PEPs before the end-of-tax-year deadline. It is possible to get a tax-free income of 10.8 per cent a year with some capital growth by buying the income shares of Gartmore's British Income and Growth investment trust for these PEPs. Generally, it might be worth the Doyles not having the same PEPs, but the high income available from the Gartmore trust means other investments do not have to be as income- oriented.

The bulk of the remaining inheritance should be split between a number of unit trusts: GT Income (income 3.8 per cent), Credit Suisse (4.3 per cent), Jupiter Income (4 per cent), Schroder Income (4.5 per cent), Mercury Income (4.2 per cent), and - for growth - GT Orient, which invests in the high-growth economies of the Far East.

With any PEPs the Doyles take out in the 1997-98 tax year, they should look for those that will also accept windfall shares from building societies, to save tax on the dividends.

The change-over to the self-assessment tax system may induce the Doyles to consider a portfolio management service, which will help them collate dividend information for the taxman. Services are offered by a number of companies, including Rothschild Asset Management and Singer & Friedlander.

The Doyles should ensure assets are distributed between them to optimise individual tax allowances. A further way of increasing their disposable income might be to pay off their remaining mortgage early, but they should check for penalties in doing this. They could also consider selling the land adjoining their house.

The Doyles cannot take advantage of the generous tax breaks available on personal pension plans for retirement saving because they do not have earned income to save. But in four years' time Mrs Doyle will start receiving the state pension, which will increase the couple's income.

Finally, neither has a will, and they should set these up. The Doyles do not have any children but should not assume that if one of them were to die the spouse would automatically inherit everything. Without wills, they could find assets ending up with other family members.

Mr and Mrs Doyle were talking to David Wilson of Blackfriars Financial Services, an independent financial adviser based in Sandbach, Cheshire, which is part of the Burns Anderson network of IFAs.

If you would like to be considered for a financial makeover, write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL.