A 54-year old civil servant living in south London wants to bring her work pension up to an adequate level to make up for a long period of unemployment.

Hillary Kentish recently inherited £46,000 from her father, which she put into a savings account, and she saves £20 every month from her £17,500 annual salary. She has also put £3,000 into a cash Isa and holds £4,000 in a balanced investment fund.

She has no dependants and is prepared to save as much as possible to enable her to retire at 65 or 70, although she currently finds that her expenditure matches her income almost exactly thanks largely to high council tax and rent payments.

At the moment Kentish puts around £23 into her civil service employee pension scheme each month. She has projected her annual retirement income to be just over £8,000, including state pension, with an additional lump sum of £9,600.

Jonathan Fry, chartered financial planner at Jonathan Fry & Co, says that Kentish’s prudent approach to her finances has ensured that she should be in a position to enjoy a financially secure retirement provided she does not suddenly become extravagant.

Her main objective is to make the money she inherited from her father work harder to provide her with an income or sufficient savings to complement her pension. She is therefore very cautious about the amount of money she wishes to risk, but does not want the inheritance to lose value.

The advisers say that protection products are ordinarily the first port of call for financial planning, especially as Kentish does not live with family who would be able to care for her if she fell ill. But as her finances are stretched she may wish to prioritise her retirement plans instead.

Kentish lives as a protected tenant in her London flat and pays £800 a month. “I was given the tenancy of this flat in June 1987,” she says. “My landlord has made a verbal offer of £15,000 for me to leave the flat subject to the offer being documented by a solicitor.” The advisers recommend Kentish looks into the legal implications of this before taking any steps to leave.

Julie Lord, certified financial planner at Cavendish Financial Management, says that if Kentish wants a comfortable retirement she needs to be prepared to take a little more investment risk and consider improving her pension benefits.

The lump sum from her pension, added to the money she received from her father, and invested correctly, could net Kentish 5 per cent income each year and possibly a bit of capital growth.

“This should provide a further approximately £2,775 per annum towards her retirement income,” says Lord.

Gill Cardy, chartered financial planner at Professional Partnerships Independent Financial Planning, says Kentish could possibly afford to retire at 63. “This is likely to surprise her,” says Cardy, “but it proves the value of crunching numbers whatever your financial position.”

The advisers say that Kentish should also aim to improve her civil service pension, perhaps by buying added years or by setting up a personal pension. Fry says that added years do not carry any investment risk and provide an increased pension and an increased tax-free lump sum.

“As she wants to work beyond her normal retirement date then she should consider deferring her state pension benefits for as long as possible,” says Lord. “They will increase by each year of deferral.”

The most important thing for Kentish to obtain, Lord adds, is a cash flow forecast. This will show her how her life will look over the next 20-30 years, taking account of inflation, investment growth and interest rates.

This will also allow her to think carefully about her investment strategy. Lord’s advice is to invest £17,000 of her lump sum into a pension, preferably to buy extra years of her civil service pension. She then recommends investing £7,500 each into the Framlington UK Opportunities fund and Invesco Perpetual Income fund, which will provide her with a broad-based portfolio.

Although Kentish is not keen to pay fees to a financial adviser for her investments, Cardy points out that any investment where a fee is not discussed will almost certainly be arranged on a commission basis.

To maintain access to some of her capital Fry recommends keeping a saver account. An online saver account at the same building society she currently holds her money in, which gives her 4.2 per cent, offers 5.6 per cent for six months, falling to 5.1 per cent.

Cardy say she should invest her capital low risk, for the long term, to build up a fund which can be ultimately be used to provide further tax-free investment in retirement. That means continuing with Isa investment.

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