Michael Copeland looks at some of the changes to the NHS Pension Scheme, as well as what you need to arrange if you practise private dentistry.
Research by Wesleyan has shown that many dentists are still in the dark when it comes to their retirement income needs and are worried about their future prospects.
The research showed two thirds (67%) didn’t know how much income their pension arrangements would generate, with more than half (52%) worried they wouldn’t have enough to live comfortably in retirement*. Michael explores the key questions.
NHS dentists
Proposed changes to the NHS Pension Scheme has left 76% of dentists saying they believe the situation will get worse, leaving many to ask themselves whether it is still worth being a member.
How much pension will I receive from the NHS Pension Scheme?
The new NHS Pension Scheme will be implemented on 1 April 2015. There will be changes to the way in which benefits are calculated, how they can be taken at retirement and the age at which members can receive their pension.
Under the 2015 scheme, benefits will be calculated on average earnings and will take into account pensionable earnings in every year of scheme membership, rather than just the final year prior to retirement.
The new scheme will also bring normal retirement ages in line with the increased state pension age, although members will still retain the right to take benefits at any time between the ages of 55 and 75.
While it is likely you will have to contribute more and receive less than under the previous arrangements, the NHS Pension Scheme will remain an excellent proposition and will likely continue to be so in the future, particularly when compared to private pension schemes.
Will my employer contribute to my pension?
In the 2015 NHS Pension Scheme, as well as the contributions you make, 14.3% of your pensionable income each month will be collected from your employer, which will be either NHS England or Local Health Board (Wales).
Private dentists
Any earnings from private work are not pensionable for the NHS Pension Scheme and will not be eligible for NHS employer contributions. If you choose to go private and leave the NHS Pension Scheme, some of your benefits will be lost, such as the ill-health pension, or reduced. But not all is lost, as you can choose to replace these benefits with a combination of pension, savings and protection products.
How much will I receive from a private pension?
With a private pension, how much you will receive from it will depend on how much you have saved over the years.
You have a number of choices for what to do with the money from your private pension money when you decide to take your benefits. There are changes coming into effect from April 2015 that will change the way people can access their private pension pots. These include:
- Individuals over 55 will be given much more flexibility in being able to draw up to 100% from their defined contribution pension savings (eg, the personal pensions and stakeholder pensions), without the need to buy an annuity
- Individuals will still be entitled to take up to 25% of their lump sum tax free, although any amount above this will be subject to income tax at their highest marginal rate.
Who will contribute to my pension?
If you are a salaried dentist in a private practice, your employer will need to automatically enrol you into a pension scheme that meets set criteria and then make contributions towards it. If they are not already enrolling staff, they will need to before April 2017, which is when most small firms with 30 staff or fewer need to be ready. You are able to opt out of the scheme provided by your employer, but you must be enrolled into the scheme first.
If you take out a private pension yourself, it will typically be entirely funded by you, with no contributions made by your employer. The lack of additional contributions from your employer may result in you not reaching the level of retirement income you want, so it is important to plan ahead and save accordingly to achieve the pension you desire.
Conclusion
Even with the ongoing changes to public sector pensions, the circumstances where it will be beneficial for you to opt out of the NHS Pension Scheme will be extremely rare, especially when you take into account the lost additional benefits. If you practise private work and have to make your own pension arrangements, it is vital that you seek professional advice before making any decisions that could impact on your finances.
*Research based on a survey of 412 professionals (100 dentists, 101 doctors, 103 lawyers and 108 teachers) by Censuswide on behalf of Wesleyan February 2014.
For more information If you would like further advice and support on evaluating your pension options or for more information on Practice Plan’s, NHS change support team, email [email protected] or visit www.practiceplan.co.uk.
