For most of the doctors I meet, their NHS Pension will underpin their retirement planning. So, it’s probably a good idea to get clued up/take some advice if you have a specific date/lifestyle in mind!
Here’s what you should be thinking about:
- We think it’s a good idea to determine what you need and work back from there. What will your costs look like when the kids have finished Uni and the mortgage is repaid for instance? If this is still £100,000 per annum and your pension projection is £60,000 you might want to rethink your spending.
- Get a Total Reward Statement – this will tell you what you have accrued to date. For the bulk of NHS professionals, if you were under age 50 on the 5 April 2012 you will have 2 pots: 1995/2008 Scheme and 2015 Scheme. There is an element of protection for those slightly under that age but likely that you will end up in the 2015 Scheme at some point before retirement. Here is the link if you haven’t already done this: https://www.nhsbsa.nhs.uk/total-reward-statements
- The Early Retirement Factors. If you want to stop working and take your benefits before the normal retirement age it’s a good idea to establish what the normal retirement age is. For most doctors with benefits in the 1995 Scheme this is 60. However, if you have some accrued benefits in the new 2015 Scheme it is your State Pension Age. It would be helpful to know when that is: https://www.gov.uk/state-pension-age If the bulk of your benefits are in the 1995 Scheme and you want to take them at 58 then you are looking at a 9% reduction in your pension and a 4.5% reduction in your tax-free cash. Not too bad. Look at the 2015 Scheme. If you are around age 50 you will likely have a State Pension Age of 67 – this means that your 2015 benefits will be reduced by 36%. This is significant and you need to be aware and plan around it. Check out the www.nhsbsa.nhs.uk website, just search under early retirement factors.
- The impact of the Lifetime Allowance on your benefits. If your pension benefit value exceeds £1.055m then you will pay a Lifetime Allowance Tax Charge. For someone with 1995 pension benefits only, this equates to a pension of just short of £46,000 and tax free cash of around £137,000. You may be able to protect this if your benefits were between £1m and £1.25m as at 5 April 2016. https://www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance
- The Annual Allowance and impact on your benefits. Ask NHS Pensions for an Annual Pension Savings Statement, they should send these out if you are exceeding the £40,000 permitted annual growth that your pension is allowed to have. However, there is some new legislation that came in from 16/17 which means that if your taxable income is over £110,000 your Annual Allowance of £40,000 could potentially be “tapered” down, which might cause a higher tax liability. Check with your accountant or financial planner, if you have one as they can calculate this for you. If you have any other pension scheme remember that any contributions you make to that counts towards the Annual Allowance.
Hopefully this is a good start for anyone thinking of their financial Independence Day.
If you have any questions regarding your NHS Pension, pensions in general, or retirement planning, you can get in touch with us here.