A therapist in search of some financial healing

Gillian Thurlow, 47, is a self-employed complementary therapist (specialising in reflexology and yoga). She is divorced and has a daughter in her first year of university on a full grant. Gillian has been self- employed for eight years but suffers from ME (chronic fatigue syndrome) and can only manage to work part-time, which is reflected in her present earnings of pounds 5,000 a year. She also gets benefits of pounds 28 a week.

She has a pounds 10,500 mortgage with an endowment policy set up to pay it off in 13 years. The mortgage costs her pounds 55 a month, the endowment pounds 28 a month.

She has pounds 6,000 of other debts and no savings except a small pension to which she has been contributing pounds 50 a month for four years. But she is due to inherit pounds 46,000 from her father.

Gillian does not know when, if ever, she will be working full time and is worried about how she will cope in old age. She is keen that any investments should be ethical. She is also concerned about whether the legacy from her father will affect her daughter's entitlement to a grant.

What a financial adviser recommends:

The legacy will allow Gillian to pay off all her debts as well as leaving a reasonable lump sum to add to her existing, modest retirement savings. Furthermore the pounds 46,000 lump sum should not affect her daughter's full grant entitlement as liability for parental contribution is based only on income. If Gillian's annual income stays below pounds 16,450, her daughter will still be entitled to a full grant.

Even though Gillian is looking to pay off her mortgage with the legacy, she should probably continue with her Sun Alliance endowment policy. It has been running 13 years and will mature in her chosen year of retirement, giving a good boost to other pension provision.

In theory she could cash it in or sell the endowment on to another investor and look for an investment likely to yield a higher return over the next 12 years. But with-profits policies of this kind are relatively low-risk investments and give poor value if cashed in early. And with the inheritance, Gillian will have other money to invest.

Gillian says she may also want to move house or buy a better car when she gets the pounds 46,000. It is important then not to commit too much money to long-term savings plans. Initially she should keep the money on deposit, perhaps in a notice account that offers slightly more interest but gives her the access she wants. Once the debts are paid and spending decisions have been made, Gillian can look to longer-term saving.

Probably the biggest attraction in pension plans is the tax relief. Gillian could use unused allowances from this and previous years to get tax relief on a lump sum paid into her pension, subject to certain limits.

A PEP is one way of saving for the long term, combining tax-free investment in the stock market with the flexibility to get money back at any time without loss of tax breaks. There are a range of ethical PEPs to choose from; one of the best-known companies is Friends Provident.

Gillian would like to retain some access to her savings in case her earnings remain low, so a PEP might be preferable to a Tessa where, for the interest to be tax-free, you can't touch your savings for five years.

Even if she does start working again full-time, Gillian knows she will never be rich. But careful management of her savings should allow her to be modestly comfortable when she retires.

Gillian Thurlow was talking to Byron Longstaff, an independent financial adviser in Tyne & Wear and a member of DBS Financial Management, a network of advisers. If you would like to be considered for a financial makeover for publication write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL. Please include details of your current financial situation, a daytime telephone number, and state why you think you need a makeover.