l Q I have a variety of investments including PEPs and unit trusts and I am looking to invest a further amount from which I want to take an income. As the existing ones are more geared for growth, what sort of thing should I be looking at?

l A If you have a portfolio of investments you understand the wisdom of spreading your money in different areas, and also the potential rewards of medium to long term investments in the stock market. There is much speculation about the short term future of the markets but over a five year period it is anticipated that the market may rise.

If income is a priority, then you ought to consider including an Income Bond as part of a balanced portfolio. There is one available offering a fixed return nine per cent net of basic rate for five-and-a-half years. It is linked to the main indices of the UK and Swiss markets and requires an average growth each year of just over five per cent to return your capital in full.

With interest rates falling, generating an income without harming your capital is increasingly difficult but as part of a portfolio, such an investment offers very high returns with comparatively low risk. For more information of this new limited launch readers can call (01484) 860123.

l Q Could you explain what Contracting out of SERPS involves as I recently saw an article about it and wondered whether it affects me?

l A SERPS stands for State Earnings Related pension Scheme, and is a top-up to the basic old age pension that is funded by National Insurance contributions. SERPS affects employees who are not members of a contracted out company pension scheme.

Because of the way it is funded and the fact that we have an ageing population, the Government offers people the chance to Contract out of SERPS. This means that rather than build up benefits under the state scheme, you can have a certain amount of money paid into a personal pension. The amount involved depends on how old you are and how much you earn. The Government has recently altered the way in which SERPS operates. This makes it important for you to check your current situation.

If you find you should contract out, then the process is very simple. You select a pension company and sign a certificate that is passed on to the DSS. Your National Insurance contributions are paid as normal, so it won't affect your payslip, and once a year the DSS transfer the relevant amount into your pension plan. Readers can obtain a guide to Contracting Out by ringing (01484) 860123.

Alan Mills is an independent financial adviser with A. J. Mills Independent Financial Advisers, a member of DBS Financial Management PLC, which is regulated by the Personal Investment Authority. Not all contracts of PHI are regulated by the PIA. Answers given are for general guidance only and specific advice should be taken before acting on any of the suggestions made. All information is based on our understanding of current tax practices which are subject to change. The value of shares and investments can go down as well as up.

Converted for the new archive on 30 June 2000. Some images and formatting may have been lost in the conversion.