It's time to pick up the pieces

Stephen Bailey, shortly to turn 40, is recently separated from his partner and earns pounds 18,400 a year as the branch manager of a care agency.

Mr Bailey has no savings and lives in rented accommodation in Wolverhampton. He has been working for his present employer for almost two years and is eligible to join the company pension scheme, but has not yet done so. He is also entitled to a small pension from the NHS from the age of 60. In today's money this is worth pounds 1,571 a year, but the amount will be upgraded in line with inflation (up to a maximum of 5 per cent a year) between now and when Mr Bailey retires, and also increased in line with inflation once he has retired.

Mr Bailey has not accumulated much in the way of savings or pension provision in the range of jobs he has had over the years - he has been in the Navy, worked in a paper mill, and been a nurse in the NHS. Now approaching 40, he is aware that he needs to get his act together and start putting some money aside. But where to start? Mr Bailey says he is okay with sociological research statistics but befuddled by the world of finance. He likes the idea of green and ethical investments but has no idea how to find or choose them.

What a financial adviser recommends:

Mr Bailey really does need to get the savings habit. He wants to retire at 60 but has made next-to-no provision to date. He has just 240 monthly salary cheques to go!

One result of his broken career has been that pension entitlements - where they do exist - are fragmented. Mr Bailey is not even sure whether he is due pensions for jobs prior to 1983 - before he became a nurse. The paper mill may have closed down but conceivably Mr Bailey may still have a pension nest-egg sitting somewhere for his time with that employer.

In the first instance he should write to his old employer(s); he might also be able to get help tracing any lost entitlement from The Occupational Pensions Board, Pensions Schemes Registry, PO Box 1NN, Newcastle-Upon- Tyne NE99 1NN (phone 0191 225 6393/6394).

He is entitled to a small pension from the NHS and has also been offered membership of his present employer's scheme. But his current employment contract only runs to May next year and his company has just been taken over.

This uncertainty is hardly encouraging for Mr Bailey in deciding whether to join the company pension scheme. Obviously, he needs to get full details first. But as a general rule such schemes are good deals - the main advantage being that the employer will also put money in on your behalf or otherwise subsidise the scheme. It could even be worth transferring the NHS entitlement to this scheme, although this decision should only be taken after careful consideration of the comparable pensions with which he might end up.

That aside, Mr Bailey should be wary of making too many other savings commitments.

In the short term, he should probably look at putting money every month into a combination of the building society and a tax-free personal equity plan. The money he puts into the society will allow Mr Bailey to build up a "buffer fund" - protection against an unexpected loss of income or other financial need. In addition, at the end of the tax year - if life looks relatively rosy - he could transfer some of this money into a pension plan. Assuming he joins the company scheme, this extra money could go into a free-standing additional voluntary contribution plan to top up the company pension. An FSAVC would also allow Mr Bailey to invest ethically; the Friends Provident Stewardship fund has been a good performer among ethical AVC funds.

PEPs are also flexible in that they allow investors to start, stop and change monthly savings without charge. There is no reason why they cannot be used to save money for retirement - indeed, many advisers recommend them as a more flexible alternative to AVC pension plans. If Mr Bailey's ethics allow, he should consider a PEP that invests some of his money in the higher-growth economies of the Far East. Perpetual offers such a PEP that is well thought of. Among ethical PEPs, Credit Suisse has an option worth considering.

Clearly, building up his savings cushion is Mr Bailey's main concern. But he might also think about protecting his current income, not least because he is no longer young. If he had to stop work through ill health, he thinks his employer would give him sick pay for three months. He could consider further insurance for beyond that period, but the cost of this would eat into his capacity to save.

q Stephen Bailey was talking to Don Clark, managing director of Torquil Clark Associates, an independent financial adviser and discount PEP company based in Staffordshire.

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.