Financial adviser Greg Hendricks outlines how GPs can keep on top of money matters in 2024
As we approach the halfway point in the year, it’s a good time to take stock and review your financial targets and goals.
Here are five critical areas that it’s recommended that GPs keeps in mind.
Plan early for your retirement
It’s never too early to start or review your plan. Any pension you earn through the NHS Pension Scheme (NHSPS) will be calculated as a proportion of your average earnings during your career. This will depend on how long you have worked as a GP and the annual wage you earned, among other things.
While the NHSPS could provide a useful income for your retirement, and you will also likely be eligible for a state pension, this might not be enough for you to achieve all your goals or ambitions.
By planning ahead at the earliest opportunity and taking guidance from an NHS pension expert you can cut through the jargon, understand if you are on track to meet your retirement goals and create a personalised strategy to ensure you can make the most of life outside the surgery.
Or you might want to retire from your practice before your normal retirement age and need to understand how that will affect the amount your NHS pension pays. That could mean setting up a private pension or investing to earn an additional income.
Be mindful of tax allowances
In recent years, the risk of receiving a tax bill for breaching the pension ‘annual allowance’ (AA) – the amount you can pay into your pension every year without paying tax – was a major concern for GPs.
Last year’s changes to the AA and pension tax rules have helped reduced the risk of many breaching the AA and being stung by a tax charge. But it’s still important to be mindful of your tax allowances, particularly if you’re a higher earner.
Like everyone, the money GPs pay into their pension is exempt from income tax – up to a limit.
For most people, that is currently £60,000, or 100% of earnings, whichever is lower, but for the highest earners it can be much less. Wesleyan has prepared a guide on the ins and outs of pension tax here.
The first step towards planning for the annual allowance is to calculate your entitlement, and check whether you’re eligible for the full tax allowance or not. To help you do this, you can ask the NHS Pension Scheme for a pension saving statement, which shows the amount saved into a pension over the previous tax year.
If you are unsure of what your annual allowance is, or think you may be affected, speak to a specialist financial adviser. They can help you understand any steps to manage your liability.
You may be able to roll-over unused allowances from previous years, for example, or pay any tax charges out of your future retirement income.
Protect your income
It pays to have the right level of protection in place. Check that you have this, and that any protection you have is still at the appropriate level for your needs.
Being underinsured means you will be left out of pocket if you need to make a claim. At the same time, being overinsured means you’re probably paying more for your policy than you need to.
It’s not just buildings and contents insurance that practices need to think about.
There’s income protection insurance to cover your mortgage and other expenses if you fall sick; key person insurance, which provides a financial bridge between the loss and replacement of key employees; and partnership protection insurance, which pays out a lump-sum to enable you to buy your partners’ share of the business if they’re no longer around.
A practice risk assessment can help identify any vulnerabilities and make sure you have a safety net should the worst happen.
Stay abreast of mortgage rate changes
While interest rates are widely expected to start falling in the second half of the year – and subsequently the cost of a mortgage will fall – the market remains uncertain.
Lots of homeowners will be questioning whether to stick with a tracker mortgage or fix.
If the cost of mortgages do drop in the near future, it may open the door to first time buyers, who have been holding off while rates remain high. And you may have the opportunity to invest in your practice premises, and be seeking a commercial mortgage.
The right mortgage product and timing for you will depend on your personal circumstances.
In the current turbulent landscape, it will pay to seek the professional support of a mortgage specialist, particularly one experienced in working with GPs.
As a GP, your professional status could be a great help when applying for a mortgage, as you may be able to benefit from low-deposit mortgages and more generous offers – savings that could add up to thousands of pounds over the long-term.
Supercharge your savings
Another important consideration is to make sure your non-pension savings and investments are tax efficient.
Everyone can currently save or invest up to £20,000 every tax year, tax-free, in an ISA. These are products that bring significant advantages because there’s no tax to pay on any growth or income you earn, so it can be worth making the most of this opportunity.
Taking advantage of ISAs is even more important given that high interest rates have increased the risk of savers breaching their personal savings allowance, which limits the amount of interest most people can earn tax-free to £1,000 a year. For higher rate taxpayers, this is lower, at £500.
New rules announced in the 2023 Autumn Statement that came into effect on 6 April this year mean that individuals can now open more than one of each type of ISA per tax year (except the Lifetime ISA), offering savers greater flexibility.
Two of the most commonly-used types are cash ISAs, which pay either a variable or fixed interest rate on your savings, and stocks and shares ISAs, which aim to provide greater returns by investing money in the market. Please remember the value of your investments can down as well as up, and you may get back less than you invest.
The Chancellor also announced the launch of a new ‘British ISA’ in the Spring Budget – a tax-free account for those looking to invest in UK-focused assets, which is set to provide an extra £5,000 tax-free allowance for UK investments, on top of the existing £20,000 ISA allowance. Quite how this will work remains unclear, but it could offer another good option for savers.
Remember, ISA allowances are on a ‘use them or lose them’ basis. If you don’t use your £20,000 before the end of the tax year (5th April 2025), you can’t roll it over into the next.
It’s also worth considering that an individual or couple saving for their retirement could unintentionally create an inheritance tax issue for their family.
A specialist financial adviser can help navigate this complex area of planning, helping you grow your savings whilst also ensuring your loved ones aren’t hit with a potentially hefty tax bill when you die. Bear in mind that the Financial Conduct Authority does not regulate inheritance tax planning.
Greg Hendricks, is specialist financial adviser for GPs at Wesleyan Financial Services. The information contained in this article is based on current understanding of legislation and does not constitute financial advice.
