Help me keep my head above water

Vital statistics Maureen Maguire
Age: 52
Lives in: South London
Occupation: Student
Earns: Nil
Mortgage: £27,500
Debts: None
Investments: £3,000 in a Tessa, £6,000 in a Pep, £18,000 in an Egg postal account, shares
Pension: Past membership of three employers' schemes
Aim: To find the best way to make use of her savings to fund a three-year university course

Maureen was made redundant from the corporate finance department of a merchant bank around 18 months ago. She is delighted to have escaped the City rat race and to be doing something which she really enjoys. Since last September she has been attending a foundation year course in art and design at Lewisham College and later this year she is hoping to start a three-year degree course in fine art and art history. At the same time she has been studying for a qualification in physiology, anatomy and massage and plans to study reflexology at evening classes next year.

Her ultimate goal is to have her own business - doing some art, counselling and massage. She says she envisages herself being the feel-good person in people's lives. 'I still have many friends who work in the City who hate their jobs but they have to continue working to keep the money coming in. I really don't want to get back into that position,' Maureen says.

In the meantime, though, she wants help to find the best way of keeping her head above water using her existing financial resources while she is studying.

'I don't particularly want to take student loans because I know I will have to pay them back again.' By living frugally, Maureen hopes she can get by. She has calculated she needs about £10,000 a year to make ends meet. Fortunately, her endowment mortgage is small and only costs her a modest £150 per month.

Maureen's main source of money for the future is the redundancy payment of £25,000 which she got from her last employer. She used it to set up a Tessa and a Pep and open an Egg account. She also has approximately 1,000 shares in Lloyds TSB from an employee share-save scheme and a similar amount in the shares of her previous employers, Close Brothers.

Over the past year she has managed to survive on money she saved while temping after she was made redundant. She is hoping to get some more secretarial work during the summer holidays this year to boost her coffers although she feels her age often counts against her. She realises that another potential source of income is to let out a room in her three-bedroom home but she is reluctant to do this unless she has to as she likes having her own space.

One thing she is not too worried about is her pension provision. During her working life she has accumulated several job-related pensions. One is a small pension from her first job which she had forgotten about until she recently discovered some old documents. On enquiry she found that will provide her with around £500 per year when she gets to age 60. More importantly, however, she has a pension from Hill Samuel where she worked for more than 17 years which she believes will be in the region of £10,000-£11,000 a year.

Finally, she will also receive a small pension from her most recent employers, Close Brothers.

Adviser 1: Gillian Cardy
First of all, I would suggest Maureen makes full use of this year's Isa allowance to invest £7,000 in a high-yield bond fund for a high, tax-free income. She may wish to consider using some shares to fund the subscription.

Any other capital not needed for living expenses should be gradually phased into Isas in future tax years to build a fund of tax-free income. Her existing Pep could also be switched within Gartmore to a high-yield bond fund to generate income.

In the short term, a student loan is a possibility. A more radical solution is to consider a transfer of her pensions into one personal pension plan and consider drawing the benefits now. This entails a detailed assessment of what she would be giving up at 60 in return for income now. But the reason why this might prove attractive is because most company pension schemes allow for payment of a spouse's pension. If she was to transfer the value of the pensions, this would be allowed for in the transfer value, but she would not be required to use the transfer value to buy a spouse's pension, enhancing the income.

She could consider flexible annuity options, such as phased retirement, in effect living each year on part of the tax-free cash and part of the income from a small number of segments within the plan. She should retain her Standard Life policy as she may benefit if the demutualisation proceeds.
• Gillian Cardy works for financial advisers Professional Partnerships.

Adviser 2: Amanda Davidson
As to Maureen's short-term requirement for income, there is little she can do with her savings to generate the amount she requires. She cannot afford to take risks so I suggest she keeps it where it is and uses up the money in her Egg account first before she cashes in Peps and shares. However, she may like to consider transferring £3,000 of her deposit savings to a mini-cash Isa so she is not taxed on any of the interest.

She should take a student loan and put it in a deposit account. Student loans do not have to be repaid until studies end so she will benefit from interest built while she studies.

A key area of cost saving is her mortgage. Nobody these days should have an ordinary variable rate mortgage because they are effectively subsidising the special deals offered to new borrowers. She should approach her current lender to see what special deals it has to offer. By taking a discounted or fixed-rate deal, she should be able to reduce her payments. Naturally she should hang on to her Standard Life endowment in case of a windfall.

The pension she quotes from Hill Samuel looks quite high. She should check to ensure she will be getting what she expects. She should check her state pension, as her benefit may be affected if she fails to pay National Insurance contributions while studying.
• Amanda Davidson works for financial advisers Holden Meehan.

• Advice is for guidance only.

Do you want to appear in Wealthcheck?
Write, including daytime and evening telephone numbers, a brief list of circumstances and any investments, to: Wealthcheck, The Observer, 119 Farringdon Road, London EC1R 3ER, or e-mail:cash@observer.co.uk. You must be prepared to be interviewed and photographed.