Margaret was born in New Zealand and intends to return to live in New Zealand on her retirement at age 60. Margaret is single, has no dependants and, apart from her garden, her main interest is exotic holidays.

She has been a primary school teacher since 1973 and has accrued valuable Final Salary Scheme benefits. She is looking for advice concerning the transfer of her pension to New Zealand and any implications on State Scheme benefits and whether she is making maximum use of her savings during the next seven years in order to provide a comfortable retirement.

The Teachers' Pension Scheme is a final salary contracted-out arrangement with a normal retirement age of 60 with an 80ths accrual plus tax-free cash. Pensions are index-linked in retirement and the scheme requires a member contribution of six per cent, the employer currently pays a further 7.2 per cent.

Margaret is contributing maximum voluntary contributions to a Free-Standing AVC arrangement with Teachers Assurance. She also invests pounds 18.50 per month with the Teachers Provident Society, currently has just over pounds 22,000 invested in a Prudential With Profit Bond and a further pounds 17,000 in a Sun Life Flexible Bond. She is currently making regular savings of around pounds 260 per month into a NatWest Reserve Account and Bradford & Bingley Building Society.

The Adviser:

David Holland is managing director of R K Harrison Financial Planning, 19/21, Great Tower Street, London EC3R 5AQ

The Advice:

If we assume that Margaret continues paying AVCs at the present level linked to rising salary and she maintains the regular investments that she is currently making, her pension from the Teachers Pension Scheme plus basic State pension at retirement age should be worth pounds 17,600 per annum combined.

If we project forward at realistic growth rates her current investments, these will have a projected fund value at age 60 of pounds 190,000, of which pounds 55,400 will be represented by the FSAVC. Using the value of her investments to buy a Single Life Annuity for a female age 60 allowing for RPI pension increases subject to a five per cent ceiling would provide a further pounds 13,165 per annum gross pension giving her a combined projected income at age 60 of about pounds 30,767 per annum of which only pounds 27,500 would be taxable.

Her teachers' pension will be paid in sterling and can be paid to New Zealand but she will have exposure to future currency fluctuations. She will also enjoy the benefit of future index-linking on her pension. Unfortunately, the basic state pension is less generous. Whilst this can be paid to New Zealand, because there is no reciprocal agreement between the UK and New Zealand, she will lose the benefit of indexation whilst she remains outside the UK.

Basically, reciprocal agreements exist with EC countries, the US and some Caribbean islands. Retiring to any other countries in the world will result in State Scheme benefits being frozen similar to New Zealand.

Margaret has a house in North London with a small mortgage on a variable interest repayment basis which is due to be cleared in about nine years' time. The loan is covered by life assurance and should she fall ill, she has a policy which will maintain her mortgage repayments.

It would be sensible for her to consider taking some of the profits and original capital from her Investment Bonds to fund more tax-efficient investments to allow greater potential returns. Neither the Sun Life nor Prudential Bonds will now have encashment penalties and so this could be accommodated from existing capital. It should be noted that some Bonds will have encashment penalties and that With Profit Bonds may have a Market Value Adjustment made to their encashment value. However, the Prudential have stated that they do not currently apply MVAs for encashment for less than pounds 25,000.

We have calculated that she should be able to encash some pounds 22,000 from her existing Bonds without triggering a tax bill. This will allow her to reinvest this money in more effective investments that better suit her attitude to risk.

It will be sensible for Margaret to use her Personal Equity Plan (PEP) allowance of pounds 6,000 for the current year in order to obtain tax free income and growth. Our favoured for capital growth is Europe where the single market and forthcoming Euro should result in tremendous opportunities for capital appreciation.

We would recommend a pounds 6,000 investment in the Invesco Unit Trust PEP using their European Growth Fund which is ranked first out of all funds in the sector over the last one, three and five years. There would be no initial charge for the investment into this fund and there will be an annual management charge of 1.5 per cent per annum. There are no penalties for early encashment.

As the UK investment market is at near record levels, we would recommend that the remaining pounds 16,000 is invested in Henderson Electric & General Investment Trust. This Fund aims to provide above average capital growth through investment in a number of international markets. It is currently trading at a discount to net asset value of 6.3 per cent. This means that Margaret can purchase shares for 6.3 per cent less than the value of the assets they represent. Any capital gains made by the Fund would be offset against Margaret's annual CGT exemption (pounds 6,800) for the 1998/99 tax year.

Over the last three years, this fund has achieved growth of 21.97 per cent per annum compared with the average fund which achieved 17.67 per cent.

There would be a 0.5 per cent dealing charge (plus 0.5 per cent stamp duty) for the Henderson Electric & General Trust and an annual management charge of approximately 0.45 per cent. Monthly investments in this plan have a slightly increased dealing fee (1 per cent rather than 0.5 per cent)

The best rate of interest that is currently paid by the NatWest for balances such as Miss Menzies is just 4.78 per cent gross per annum. The Bradford & Bingley's best instant access branch account pays just 4.3 per cent gross. We would recommend that she changes her existing accounts and uses the Cheltenham & Gloucester Instant Transfer telephone account which currently pays 7.5 per cent gross for balances in excess of pounds 1,000. Since launch this account has remained highly competitive and it is very simple to use.

Finally, we would recommend that Margaret considers effecting Permanent Health Insurance to protect her income in the event that she becomes unable to work through accident or sickness. Her current savings would provide an income for a period of time but to protect against serious illness a policy could be arranged where benefits become payable after 12 months. Such a policy, providing a tax-free income of pounds 1,137.67 per month with benefits increasing annually in line with RPI would cost just pounds 52.96 per month.

We would also recommend that she considers thinking about her possible need for long term care insurance once she is settled in New Zealand and knows her capital and income requirements.