The nest's fine - the egg isn't

Age 48
Lives in Kendal
Occupation District nurse
Earns ?21,000
Mortgage ?34,000
Debts ?3,000 car loan
Investments ?4,000 in Tessa; ?1,000 in building
society account; savings plans
Pension Member of occupational scheme
Aims To plan for retirement

Diane Kenny is anxious to boost her pension as she knows time is running out. One of her regrets is that she didn't take her pension more seriously when she was younger. Although she paid into the NHS pension scheme when she first started nursing, she says she 'foolishly' took a refund of her contributions when she stopped work to have children. The money was not wasted - she and her husband used it as a deposit to buy a home - but it has left her with less of a pension .

After having her two children, Andrew, now 21, and Jane, 19, Diane returned to part-time nursing but did not start contributing to an NHS pension again until 10 years ago.

The family's finances have been stretched recently. Diane's husband Peter, 49, had to take ill-health retirement four years ago because he suffers from Parkinson's disease. He receives a modest pension but the past year, with both children at university, was difficult. Andrew graduated this year and is liv ing at home again while he looks for a permanent job. Jane has another three years of study. Although she has taken student loans, these cannot meet all her needs. Her parents pay her rent of £200 a month during term time, plus another £160 towards her keep.

Diane is not sure how long she can keep working as her husband's health is deteriorating; she feels she may have to give up her job by the time she is in her mid-fifties in order to look after him.

So she wants to boost her pension now and wonders if she should buy 'added years' or not. She explains: 'I have been told I can buy back four added years of superannuation at £187 a month.' This would boost her pension at age 55 from £5,064 a year plus a lump sum of £15,194, to £6,483 a year plus £19,541. She hopes she will be able to work until age 58, as this is when the couple's mortgage is due to be paid off.

On the savings front, Diane and Peter have £4,000 each in a Tessa, which is money from Peter's retirement lump sum. A further £1,000 was placed in another building society, account, which is coming up to maturity. Diane is considering using that money to top up the Tessas.

She also has £500 in an ordinary savings account with Bradford & Bingley. She has two savings policies with the Royal National Pension Fund for Nurses, for £20 a month each, and is also trying to pay £50 a month into a mini cash Isa, so she can help Jane pay off her student loans when she graduates.

Her £3,000 three-year car loan has two years to run. She has a credit card, but it is rarely used except at Christmas and for emergencies.

Adviser 1: Amanda
Davidson
Added years would have the advantage of
increasing Diane's pension within an extremely
good scheme, that of the NHS. The attraction of
any pension top-up (whether added years or
investment) is that there is tax relief on payments,
though there is a lack of flexibility on how the
money is taken out.

However, buying added years in the NHS scheme
is about as rock solid an additional pension as
you can get. If Diane were to take an investment
top-up scheme, on the other hand, the pension
she would get would depend on its investment
performance, which carries risk. Also, as a
woman, she would get a worse annuity
rate/eventual pension than a man of the same
age , as she would be expected to live longer.

However, with added years, care needs to taken
in case she needs to retire earlier than expected,
as there may be some penalty. She should check
what the position would be in this situation.

A tax-efficient alternative to a pension top-up is to
invest in an Isa. Although there is no tax relief,
there is flexibility on how the money can be taken
out, and it will be tax-free. Diane could invest in
an equity Isa. She could put ?3,000 into a
mini-equity Isa this tax year, but this stock market
investment does carry risk.

• Amanda Davidson works for financial adviser
Holden Meehan.

Adviser 2: Gillian
Cardy
Diane is paying her mortgage at the standard
variable rate of 7.29 per cent. She may wish to
consider a remortgage. Nottingham Building
Society has a fee-free discount mortgage, which
would save her ?42.50 a month in interest over
five years.

She could invest these monthly savings into an
equity Isa. The Leeds & Holbeck cash Isa is
paying interest at 7.2 per cent but it is only paying
6.2 per cent on Tessa money. The Tessas could be
transferred to a different provider. At maturity she
could use the proceeds to fund low-risk equity
Isas for growth, which could be switched to
income funds for extra tax-free income.

She should not forget that she will qualify for a
state pension at 62, and she should obtain a state
pension forecast using form BR19. She should
check whether she will receive a spouse's
pension from Peter's scheme after his death.

She could discuss with her union whether she is
one of the part-time workers benefiting from
recent European Court rulings. She could
consider the option of transferring out of the NHS
pension scheme just before she retires. The
transfer value will allow for the full value of a
spouse's pension, and she may get a higher
monthly pension.

• Gillian Cardy works for financial adviser
Professional Partnerships.

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.