Are you planning for your retirement?
We offer a bespoke service to dentists, providing projected pension calculations using our specially designed models, incorporating up-to-date pensionable pay and dynamisation factors. We are able to advise regarding optimal dates to retire. We are able to build into the calculation actuarial reductions for early retirement, if retiring early, other than for ill-health. We obtain a yearly pension quote from the NHS Pensions Agency and check that all service history is contained within the quote and check the figures used by the NHS Pensions Agency against actual earnings. We are able to compare projected pension with the Lifetime Allowance (LTA) for the retirement year in question and ascertain whether, if liable to the charge, other options are available, such as:
– Increasing the lump sum and foregoing pension (pension commutation)
– Early retirement
– 24-hour retirement
– Pension deferment
– Reduced commitment
– Paying the tax charge
We have our own in-house independent financial adviser who is an expert in dealing with the NHS pension scheme to help advise, and who will arrange an initial free review of your personal financial affairs. This review is designed to establish the areas where we can assist with planning and adding value.
The NHS pension’s contribution towards the LTA is calculated as 20 times the pension plus the lump sum. Under the standard terms, you will receive a tax-free lump sum at retirement of three times your pension. Under the new NHS pension regulations, which came into effect on April 1, 2008, it is possible to forego some of your pension to secure a higher lump sum. Each £1 of pension foregone secures a further £12 of additional lump sum. Crucially, commutation alters the capital value of the pension, lowering its contributions to the LTA.
By monitoring benefits on an annual basis, it may be possible to determine an appropriate time to elect to leave the scheme, when your benefits are still below the LTA. You would then defer taking the benefits at that time. A cushion will need to be factored into the calculation, as there will still be growth up to the time pension is taken, but no further contributions would be made.
Rather than deferment, at the appropriate time you may elect to receive benefits when the capital is still below the LTA. This is classed as genuine retirement, so you will need to receive the PCT’s approval that you will remain as a dentist provider afterwards. By taking benefits before the age of 60, early retirement reduction factors are applied. If you are over the age of 55 however, the annual cost of living increases will start straight away.
A phased retirement may also be considered. By reducing to, say, half-time commitment for the last five years of working, the capital value of the pension will be reduced and, with or without commutation, may fall back within protected levels.
Paying the tax charge
As an alternative to all of the above, we should also consider the relative position of taking benefits at the normal retirement age and accepting whatever additional tax penalty that may arise. We can also provide advice regarding tax implications of retiring at certain dates and projected final tax payments for partnership income tax liabilities.