Wealth Check: 'How can I enjoy the good life and make good investments?'

A graduate who has chosen to go back to the land as much as she can wants to know how she should invest, and plan for retirement
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Kate Osborne describes her life as a north London version of The Good Life. Like the TV programme's back-to-nature couple, Tom and Barbara, she grows vegetables in her garden. She has also spent a lot of time on organic farms in Italy and California and Cape Cod as a member of Willing Workers on Organic Farms (WWOOF). "I wanted to see if people could make a living from simple organic farming," she says. "I love being out in the open air, even when it's raining."

Ms Osborne, 36, was born in south London but was brought up in Canada and the US. She returned to Britain to study human biological sciences at Loughborough University. After her degree, she worked for the NHS communicable disease surveillance centre in 1989 as an epidemiologist. After nine years she left and spent the next few years temping in the UK and working abroad on organic farms. Since February, she has been temping as a medical secretary at the Royal Free Hospital in Hampstead, north London.

She owns a one-bedroom garden flat in Archway, north London, worth £170,000. "I was lucky," she says. "Ten years ago when the housing market was rock bottom and the Chancellor of the Exchequer abolished stamp duty on cheaper homes my dad contributed money and I was able to buy my flat." When she later came into an inheritance she was able to pay off the mortgage.

While Ms Osborne was working abroad, she rented her flat and put the funds into a Nationwide building society Members Bond Isa, now worth £2,376. "My friend was living in the flat at first, but then it was occupied by naïve young people," she says. As a result the flat needed work when she returned. Her father gave her £6,000 to pay for repairs.

Ms Osborne has £600 in Premium Bonds, but has earmarked this to pay her freeholder. She has started an emergency savings fund to which she is contributing about £50 a month.

She would like advice on where to invest this. "I seem to have lots of little pots of money spread around and I'd like to consolidate them," she says. She has no shares but would consider ethical investments. "I'd have a problem with companies such as Coca-Cola and Nestlé," she says.

Ms Osborne has an NHS pension from her time with the communicable disease surveillance centre which is forecast to pay £2,394 a year when she retires, plus a lump sum of £7,184. She has the option of rejoining the NHS pension scheme while she is working as a medical secretary and wonders if this would be wise.

She would also like to know if she should consider putting her Isa savings into the scheme as additional voluntary contributions. "I wouldn't touch a private pension," she says. "I've been told an NHS pension is very reliable. Should I be planning more for my retirement or is my house enough to fall back on?" As well as being a keen gardener, Ms Osborne is a budding writer. She has found a publisher for one of her short stories. She would love to go professional, but realises it is very difficult to make a living out of writing.

At the beginning of next year Ms Osborne is planning to go and work in Puglia, Italy. "There's a place where they teach you how to build dry stone walls where I'd love to go," she says. "I can't stand Britain during February when the skies are constantly grey. It's so depressing."

She also plans to make over her garden, something she anticipates will keep her busy.

We put her case to Marlene Shalton, of Chambers Morgan James in Cardiff, Robert Guy, of Timothy James & Partners in London, David Bitner, of the MarketPlace in London and Danny Smith, of Towry Law in Berkshire.


Name: Kate Osborne;

Age: 36

Status: Single

Occupation: Writer and gardener; temping as a medical secretary at London's Royal Free Hospital (trained as epidemiologist);

Education: BSc (Hons) Human Biological Sciences at Loughborough University;

Car: None;

Salary: £278 a week (depending on hours worked);

Savings: £2,376 in Nationwide Members Bond Isa; £600 in premium bonds;

Pension: Nine years in NHS pension scheme (Forecast: £2,394.83 a year and lump sum of £7,184.50);

Property: One-bedroom garden flat in Archway, north London (estimated worth £170,000);

Outgoings (Per month): Spends all her salary, except for £30.

Solution 1: Savings

Mr Bitner says Ms Osborne should build up an emergency fund of at least two to three months' outgoings in an instant access savings account. The ING Direct account pays 4.22 per cent a year gross. Her Nationwide Members Bond pays 4.40 per cent gross, but it does not allow any part-withdrawals and closing the account early would mean surrendering 90 days' interest.

Mr Smith says in keeping £600 in premium bonds for a potentially short period of time Ms Osborne is effectively taking a gamble that she will win something and there is no guarantee of that. He recommends she puts the £600 into a cash Isa with an instant-access facility.

Ms Shalton says although Ms Osborne does not require life cover she should seriously consider income replacement, since if she were unable to work she would be forced to depend on state benefits. But getting an appropriate policy would be difficult because of the haphazard way she works.

Mr Guy says Ms Osborne needs to review her spending and outgoings since she has £30 per month left over at the end of each month. If she can reduce her outgoings she would be able improve her long-term savings.

Solution 2: Property

Mr Smith says Ms Osborne should not plan for her property to be her retirement nest egg. Although she has no mortgage, she will still need somewhere to live when she retires.

The only way to realise her capital is to sell her home and buy a cheaper property or take out an equity-release loan. Whichever way she chooses to go, it will almost certainly prove more expensive than contributing to a reliable tax-efficient pension. Mr Guy also says he would not advise clients to think of their house as a way of providing for their pension in retirement, although he concedes this may well be what happens to a vast section of the population because they have not planned their pensions properly.

Mr Shalton says Ms Osborne is fortunate she has paid off her mortgage. In retirement, she can access the equity in her home. He says there is no reason she should not use the equity available and that will probably act as her pension, although whether it will be enough remains to be seen.

Solution 3: Pension

Mr Smith says Ms Osborne should restart contributions into her NHS pension scheme as soon as possible. The long-term benefits of being in a final-salary scheme are valuable, even if she is working only part-time. With any earnings from writing, she should consider contributing to a stakeholder pension with a maximum contribution of £3,600 gross per annum. Although this may seem like planning for the long term, benefits could be taken as early as age 50, only 14 years away for Ms Osborne.

Mr Bitner says Ms Osborne should consider protecting her income in case she is unable to work for a prolonged period. The NHS does offer short-term income protection, but this is not available for longer periods.

Mr Guy says nine years' service with the NHS is better than no pension but he does not think Ms Osborne should rely on it. Even if she were to rejoin the NHS pension scheme now and worked continuously until she was 60 she would still complete only 33 years' service, which would not provide the maximum pension available.

He thinks she should make contributions to a stakeholder pension scheme. Basic rate tax relief is available on all contributions, even if Ms Osborne becomes a non-taxpayer. On retirement, she would simply claim the benefits from the NHS pension scheme and take 25 per cent of the personal pension fund as tax-free cash, with the balance of the fund used to give her an income.

Ms Shalton also thinks Ms Osborne should renew contributions to the NHS pension scheme. If she is able to do so between now and 60 she will have at least 33/80ths of her final salary.

In today's terms, based on a salary of £13,000, that would mean a pension of £5,362.50 and a tax-free lump sum of £16,087.50. She will also receive the state pension as well the state second pension (S2P). She should get a forecast of these by obtaining form BR19 from the Department of Work and Pensions.

The full state pension is payable provided she has made national insurance contributions for 90 per cent of her working life, otherwise hers will be scaled down. The state second pension (S2P) is earnings-related but a flat-rate is being introduced in 2007 for low earners.

On present rates, Ms Osborne would be eligible under the state second pension for 10 per cent of earnings. If her earnings are lower than £10,800 on retirement she would get 40 per cent of earnings. If she is not planning to earn much more than she is now, Ms Osborne might be better off earning less the nearer she gets to retirement.

If you would like to be given a financial health check-up, write to: Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk.

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