Pension specialist Alec Collie explains the latest on GP pensions and what they need to consider when planning for life after work
It seems GPs could benefit from spending a bit more time focusing on their financial health when it comes to retirement.
A recent survey by the Royal College of General Practitioners carried out for Wesleyan found that fewer than one in 10 (9%) GPs are fully confident that their current financial plans will achieve the kind of retirement they’d hoped for.
At the same time, only a third (32%) have reviewed their retirement plans with a specialist financial adviser within the last two years.
The benefit for GPs of getting their retirement affairs in order is that they can begin to enjoy the peace of mind that comes with a clear plan.
So, here are a few pointers to help GPs work out how to achieve their ambitions.
Planning and partnerships
A key consideration for GPs working in a practice partnership is to first speak with colleagues to consider any agreements on retirement that may already be in place.
Some partnerships have arrangements that limit how many partners can retire within a fixed period, for example.
With an agreed exit strategy in place, you can then start thinking about the level of retirement income you’ll need to live the lifestyle you want.
The first step is to gather all the information you can about your current financial circumstances.
If you’re thinking about retiring, you’ve likely been paying into the NHS Pension Scheme for some time.
You can find out how much pension you have built up so far by going online and requesting a Total Rewards Statement (TRS) from the NHS Pension Scheme.
Then it’s time to take a hard look at your finances.
Achieving your lifestyle goals
In order to write an effective retirement plan, you first need to work out the level of income you’ll need to live the lifestyle you want.
So, what are your incomings and outgoings now and how might they change after you retire?
By creating a detailed budget that takes in everything from household bills to holidays, you can clearly see if you will have enough money coming in to achieve the standard of living you aspire to.
This is all something a professional financial advisor can help you with.
They will often have access to specialist cashflow modelling tools that assess current and future data on income and expenditure to show how your cash requirements might change over time.
With the right financial goals in place, they can also help you create a plan to get to where you need to be.
That can include strategies to work as tax efficiently as possible, which has been a big issue for doctors and still needs some consideration.
Free from the tax trap
Until recently, thousands of doctors found themselves facing big tax bills because they were inadvertently exceeding their Annual Allowance, which is the maximum amount that can saved in pensions every year without a tax charge.
The Annual Allowance was increased from £40,000 to £60,000 by the Chancellor in the 2023 Budget, while the Lifetime Allowance, which was £1.0731 million, was scrapped altogether.
It was a move to reduce the risk of punitive tax charges – primarily from exceeding the annual allowance – which was causing some of our most experienced doctors to leave the NHS, reduce their hours or drop out of the NHS Pension Scheme, forfeiting valuable retirement saving opportunities.
Indeed, Wesleyan’s research found that a fifth of doctors left the NHS pension scheme as a result of these tax issues.
But this will increase your taxable income, because money paid into a pension doesn’t attract income tax, and you lose certain benefits, including Death in Service benefit, which pays out a tax-free lump sum to named beneficiaries if you were to die while still on the payroll.
Understanding your options
If you have left the NHS scheme, there is now an option to re-join and re-start contributing to your pension pot.
After all, the NHS Pension Scheme is among the most generous in the country and has benefits that cannot easily be replicated through private schemes.
For example, the pension benefits are increased annually by inflation plus 1.5% while you are an active member of the scheme.
In retirement it then continues to increase by inflation and in the event of death the NHS pension scheme will provide a dependant’s pension which is also protected against inflation.
This includes annual above inflationary increases as well as death in service benefits.
It’s clear that retirement planning can be complex, and in today’s uncertain environment, it’s worth working with a specialist financial advisor to review your arrangements and make sure you’re on the right track to the retirement you want.
Alec Collie is Head of Medical at the Wesleyan Group