Pension regulations will significantly change next year, meaning that she has more scope to invest higher contributions.Glover says that Wendy will be able to contribute an additional 9 per cent to the scheme and buy either added years or Additional Voluntary Contributions (AVCs). The decision will depend on her attitude to investment risk and the ability to provide for a dependant's pension.Added years provide a guaranteed return as the number of qualifying years within the scheme is simply increased. The pension benefit is thus exactly the same as the USS and includes a spouse's benefit and annual escalation of pension income. If Wendy selects AVCs, the potential benefit is dependent on the investment performance of the fund selected and prevailing annuity rates at the time of taking her pension. Alternatively, she could save into a stakeholder scheme, which works in a similar way to AVCs but is independent of the USS.
The fund choice may be more attractive and suitable.INSURANCE/PROTECTION Melvin is concerned about Wendy's lack of insurance against ill health. As she is single with no significant debts, she doesn't require life assurance cover at present. But Melvin advises that she get an Income Replacement Insurance policy to provide income, in case of illness, beyond the period covered by her employer's sick-pay scheme.. Health-related shares have been in the doldrums for five years, but the tide is turning and this is tipped to be one of the best performing areas of the global stock market. In a survey by Morningstar in May, 34 per cent of European fund management groups expected healthcare to be the best performing sector in the next 12 months. If they're right, it will reverse a trend whereby the MSCI World Health Care index fell by 19 per cent over the five years (to the end of July, in sterling terms). There are several reasons why health stocks have performed weakly - and good reasons to be positive that better times lie ahead. Paul Ilott, an independent financial adviser at Bates Investment Services, says many large pharmaceutical companies have struggled as their drugs came off patent.
This has badly affected sentiment.There have also been problems relating to individual drugs. Vioxx, an important osteoarthritis drug, was recalled, leading many to expect an even tougher stance from the US Food and Drugs Administration (FDA). Tysabri, a multiple sclerosis treatment, was withdrawn after a patient in clinical trials died from a rare neurological disease This damaged the entire biotech sector. The weak US dollar in recent years has had a negative impact; 64 per cent of the world's health companies by capitalisation are US-based.Ilott says that even the big UK pharmaceutical groups have high exposure to the US. GlaxoSmithKline earns 47 per cent of revenue from the US, 25 per cent from Europe and only 8 per cent from the UK. AstraZeneca's earnings are sourced 45 per cent from the US, 35 per cent from Europe and 5 per cent from the UK.Returns for UK-based investors have duly suffered.But now the picture for health shares looks far brighter. The uncertainty of the US Presidential election last year has passed.
