Wealth Check: Cost of adopting without Madonna's millions

John Kenny, a secondary school teacher, and his wife Jane, a nursery nurse, plan to adopt at least one child in the next 12 months. The couple have a combined income of just under £43,000 a year and no debts other than a £112,000 mortgage.

They try to save £50 a month and have a cash ISA, in Jane's name, with about £1,500. But naturally, they are worried about how adopting will affect their finances. They need to know what sort of financial support they can expect from the state, especially if Jane has to take time out of work.

John has only been a full-time teacher since 2003 (he retrained after leaving the Catholic priesthood) and requires advice on his pension. He has to catch up on the years he lost. How much income should he use to buy back "teaching years" to enhance his final pension?

John and Jane also wonder whether they should continue to live in their house in Penge, and invest in it by extending. Or they could downsize to release some useful cash.

We asked for help from David Holmes, chief executive of The British Association for Adoption and Fostering (BAAF); Tom McPhail, of independent financial adviser Hargreaves Lansdown; and David Hollingworth of independent mortgage adviser London & Country.

Case notes: John and Jane Kenny, Penge, south-east London

Income: John, a teacher, earns £32,000 a year; Jane, a nursery nurse, earns £10,800.

Savings: £4,500 in Alliance & Leicester Premier Plus; joint current account with Alliance & Leicester with £1,000. Jane has £1,500 in an ISA.

Debts: Mortgage (Portman Building Society) of £112,000, taken out October 2005 for five years at 4.45 per cent.

Monthly outgoings: Just over £2,000 on living expenses.

ADOPTION

All local authorities are required to provide a range of adoption support services, says David Holmes. However, entitlements are worked out on a case-by-case basis after assessment of needs and resources.

Each authority has its own means-testing system, but John and Jane will be entitled to an assessment. Adoption legislation sets out certain circumstances that create eligibility for consideration of financial help, but there is no automatic entitlement. Holmes says financial help can only be given so long as it does not duplicate any other tax or benefit to which the adoptive parents are entitled, and it is always means-tested (see www.direct.gov.uk).

However, John and Jane will be able to claim Child Benefit from the day the child comes to live with them. Paid adoption leave is available to either Jane or John if they adopt, Holmes adds. Jane should be able to take up to a year of adoption leave, though only nine months would be paid, and not at full salary.

PENSION

John joined the Teacher's Pension Scheme when he was 43, so assuming a retirement age of 65 based on his current salary of £32,000, he can look towards a pension of £8,800 a year in today's terms and a lump sum of £26,400.

Tom McPhail says that, apart from buying back years in the scheme, to which John should devote as much resources as he reasonably can, he would not suggest any other pension investments. John should also look further into the denial by the Catholic priesthood to give him the funds they had put aside for him before he left; it could go against the Pension Acts of 1993, 1995 and 2004.

On savings, McPhail advises John and Jane to concentrate on building up spare savings in ISAs.

HOUSING

Property renovation would probably be the best option, says David Hollingworth. Downsizing might be a mistake given their plans for a larger family. Another option might be to rent the house out and raise the deposit for a new one against the existing one. This would mean a significantly higher mortgage borrowing across the two properties.

There is spare equity in John and Jane's property that could be released via a mortgage that will offer a cost-effective method of finance for redevelopment of their home. John and Jane should get quotes for extensions and factor in all other costs. If the mortgage looks affordable, this is a good option that avoids the costs of buying a new home.

For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk