Money: Open your eyes to investments

Makeover: An optometrist needs to plan ahead
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The Independent Online
Name: Sandra Small

Age: 34

Occupation: Self-employed optometrist

The problem: Sandra earns about pounds 34,000 working for a number of firms in the Midlands. She contributes pounds 75 per month to a personal pension with Equitable Life and has been contracted out of Serps with Abbey Life since before becoming self-employed. Sandra wants to retire at 55 on a salary equivalent to pounds 20,000 in today's terms.

Apart from money she has set aside for tax, Sandra has approximately pounds 11,000 on deposit, a Tessa with Birmingham Midshires and is expecting free shares from the Halifax and Woolwich building society flotations. Sandra has a Capital House Synergy Mortgage Plan PEP which is run by Newton, into which she pays pounds 22 a month. A home-owner, she is looking to move into a bigger house.

The adviser: Bryan Fisher is an independent financial adviser and the financial planning manager at Berkeley Financial Planning in Coventry. Tel: 01203 555240.

The advice: "First, your pension. If you require your retirement income to be inflation-proofed you will need to fully fund pensions to your maximum allowance, which at your age is 17.5 per cent of your taxable income.

This equates to pounds 495.83 a month. As you are a higher-rate taxpayer you qualify for tax relief at the higher rate of 40 per cent and the net "cost" is reduced to pounds 297.49 a month. I would recommend increasing regular contributions by pounds 150 to pounds 200 a month. and then making a single contribution at the end of the tax year.

You previously contracted out of Serps through Abbey Life. No further money (rebates) will be paid into this plan now that you are self-employed.

You must make sure your pension premiums will be met if you fall ill or have an accident with "waiver of premium" facilities.

Now to your investments. You have accumulated capital which is largely deposit-based at present. Although this is considered low risk, it gives you very little chance of capital growth certainly in the medium to long term.

The Capital House PEP is perfectly acceptable. However, I would be looking to increase the investment you make of pounds 22.02 a month. You cannot take out any further PEPs as you are only allowed one general PEP per tax year. The Halifax and Woolwich shares can be transferred into a PEP and Capital House/Newton are preparing to launch details of their own plan. Alternatively you may wish to keep one of the shares within a single-company PEP. You may need to add some capital to meet the minium investment level of some companies.

Over five years, I would suggest unit trusts. The sector I currently favour is the UK Equity Income. Providers I recommend are Jupiter, GT, Britannia and Schroders. Alternatively, bearing in mind your prospective house purchase, you may wish to keep a broad base of deposits, as you have accounts with societies which may demutualise.

I would recommend you hold the Birmingham Midshires Tessa for the full term to benefit from the tax-free growth. Also, you may qualify for shares if Birmingham Midshires decides to change its status.

You have about pounds 500 per month available for investment. After the increased pension investment and protecting your income, you are left with about pounds 260 to spare. I would suggest you consider a mixture of further PEP investment and a good, lower-risk with-profit endowment.

Finally, your income is dependent upon your ability to work. You indicate that you would need a minimum of pounds 500 a month to maintain your standard of living. Income protection insurance is vital. You are in a low-risk occupation and the premiums are very affordable. Friends Provident charges pounds 14.39 a month for a pounds 500-a-month income. This is deferred for three months and paid until your 55th birthday. I would suggest an index-linked contract to combat the effects of inflation.

Critical illness insurance pays out a tax-free sum upon diagnosis of one of a range of serious illnesses. I would suggest this insurance to cover your mortgage. On a joint life, first claim basis, protecting your mortgage pounds 56,000 loan is well within your budget: Guardian charges pounds 29.48 for that level of cover."

The verdict: "I found Bryan's advice helpful. I did not know that you can have pension plans running with several providers. Also, I will be considering some form of income protection, especially as I am self-employed."

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