Money: One woman's way

FINANCIAL MAKEOVER

Doctor Joanne Lister is 62. After divorce and single parenthood she began a career in middle age as an academic, specifically researching educational policy for women. She presently earns more than pounds 25,000 a year but is due to leave full-time work next March to join what she describes as "one of the statistically poorest groups in society" - that of retired single women.

Dr Lister has a small mortgage outstanding of pounds 5,000, which is more than covered by an endowment policy with Eagle Star that has nine years still to run and a projected maturity value of pounds 25,000. She owes pounds 4,000 in tax on consultancy work but clears her pounds 500-a-month credit card bill every time. A recent savings binge appears to be making some headway. As well as having funds put aside to cover the pounds 4,000 tax bill she has another pounds 19,000 on deposit with Schroders Bank, pounds 39,000 in PEPs and investment trusts (at least, that is, before last week's stock market crash) and pounds 3,000 in a Tessa.

Dr Lister is already drawing her state pension and a pension from the Universities Superannuation Scheme, which give a combined income of pounds 6,000 a year. She also has a number of small "frozen" pensions yet to be drawn from previous jobs: a Clerical Medical personal pension, additional voluntary contributions (AVCs) with the Prudential and a non-contributory pension with Commercial Union.

Dr Lister says her minimum future spending needs are pounds 10,000 a year (at today's prices), although that sum would exclude perks like travelling or indulging her hobby of watercolour painting. She sees herself as very healthy - "I could live an active life until I'm 90 at least" - and would like to put in place a manageable plan that maximises her savings.

What a financial adviser says:

Dr Lister's pounds 10,000 target income should be attainable, although she should continue to put as much aside from her income as she can while she is still earning.

Last week's stock market travails should not prompt her to sell her PEPs and investment trusts. This part of her savings will form the single biggest lump of her pension top-up and should be held for now with a view to switching to corporate bond PEPs at a later date to boost her income. Corporate bond PEPs will pay a tax-free income of 7 per cent or more - another pounds 2,500- plus a year - and while PEPs are due to be superseded by Individual Savings Accounts (ISAs) in 18 months' time, ISAs are also expected to offer opportunities for tax-free returns.

Dr Lister should continue to fund her tax-free Tessa; she can save pounds 1,800 a year on top of her original pounds 3,000, although, again, Tessas are expected to be superseded by ISAs in 1999.

While they may be small, she should ask her remaining pension providers for illustrations of her likely pensions. It would also be a good idea to consider keeping her funds in with-profits or other lower-risk investment options to protect against future stock market problems in the limited time before she draws these pensions.

Dr Lister may be able to avoid her pending tax bill by putting the self- employed earnings on which this tax is due into a pension plan.

Usual savings limits can be sidestepped by "carry-back" rules. A pension company with low charges and a good cash fund would be best; two to consider are Standard Life and Friends Provident.

For cashing in these pensions, what is known as drawdown or phased retirement might be considered for Dr Lister, letting her take some income in the short term while allowing her funds to remain invested for more growth.

Her cash should be split between an emergency fund in an "instant access" postal account and a notice account for living expenses and house maintenance costs that are more predictable. Legal & General Bank pays 7.6 per cent on pounds 10,000 in its 60-day notice account, 60 Direct.

Dr Lister says she plans to keep up the endowment policy until maturity (when she will be 70). This will give her the best possible returns from the policy, and on maturity the proceeds can be used to boost her retirement funds.

q Dr Joanne Lister was talking to Paul Grant, director of Master Adviser, an independent financial adviser (IFA) based in central London and a member of the Financial Options network of IFAs.

If you want to be considered for a financial makeover for publication, write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL. Fax: 0171-293 2096 or 2098; e-mail: S.Lodge@independent.co.uk. Include details of your financial position and a daytime phone number, and say why you think you need a makeover.