by Andrew Swallow of Andrew Swallow Professional Financial Planning
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The Independent Online
Name: Katie Dicks

Age: 22

Job: Banker's clerk at Swedish bank in the City

Salary: over pounds 13,000

When you're just 22, retirement is not exactly creeping up on you. But Katie wants to start lining her nest for the future. Now that she's been made a permanent member of staff, she can join the company pension scheme.

"I'd like to know more about proper long-term investments, such as endowments," she says. Katie puts about pounds 80 a month into various accounts she has with the Abbey National, but reckons that she could save between pounds 100 and pounds 200 a month on top of this. "I'm good at budgeting, and if I'm saving for something in particular I can put more money away."

She lives with her mother, near Ilford, and her rent and household expenses are low. Apart from pounds 4,000 she has with the Abbey National, Katie also owns some shares which her father looks after for her. Her mother has some savings accounts in her name, to which she does not yet have access.

Andrew Swallow says: "After tax and other spending, Katie has pounds 3,000 a year left out of her salary, including the pounds 80 she saves every month. As for the money her parents manage in her name, unless these investments are held in trust, she is probably liable for the tax on any interest, dividends or gains and is absolutely entitled to the assets themselves. Katie's parents might now consider passing the assets to her.

"The first thing to consider is an emergency fund. Katie should hold around pounds 2,500, about three months' net income, as a cash reserve. The building society accounts she has at the moment are uncompetitive, and she should move her savings to a single, postal building society account. You can manage these accounts either by phone or by post. She may be able to get a 6 per cent return on her savings, before tax - 2.6 per cent more than at present. She could check her local library for MoneyFacts, which shows which accounts are best.

"Now to her pension. Katie should find out details of her employer's scheme: how much her employer will pay into the plan, what the charges are, and whether there are special terms if she wants to make extra payments herself. She should get advice on whether to contract out of the State Earnings Related Pension Scheme (Serps), which means that some National Insurance is redirected into her employer's pension plan. At her age and salary, it is probably worth Katie contracting out only if she is reasonably sure she will stay employed for at least five years: the charges on most of these plans, and the new rates of National Insurance rebate, mean it is worth contracting out in the longer term.

"Since Katie has no liabilities, she doesn't need life insurance. But she does need disability insurance. Protection against long-term illness is a must for all salary earners. Katie's employers may provide this benefit, but she must check, and if necessary arrange her own insurance cover.

"Don't start an endowment savings plan. These run for at least 10 years, tend to have expensive charges and give poor value if you need to cash them in early. Because Katie is wary about risky investments, pounds 150 per month should go into a secure investment and the other pounds 75 per month be invested in a collective equity (share) fund. There are many alternatives on the market, but she might consider putting pounds 150 into a monthly savings Tax Exempt Special Savings Account (Tessa) and pounds 75 to a Personal Equity Plan (PEP). Katie already has pounds 1,000 she could put into the Tessa to kick- start these savings. Tessas let you have the interest on your savings tax-free, as long as you keep the money in the account for five years. But you can usually get hold of your money before this for little or no penalty, except that you will lose the benefit of tax-free growth. The best Tessas now pay interest of 7 per cent gross.

"PEPs offer tax-free growth, but rely on the performance of stock markets and the managers who run the funds. The simplest and cheapest PEPs are the UK Index Tracker variety. Katie should choose a fund manager with a wide range of funds, because she may want to switch her savings into European shares some time in the future".

If you would like a "money makeover", please write, including details of your job, salary, reasons you need advice and a daytime telephone number, to Money Makeover, Features, 1 Canada Square, Canary Wharf, London E14 5DL; fax 0171-293 2182.