From April 2016 pension rules are changing and it may encourage senior consultants to leave the NHS.
The annual allowance will be tapered down from £40k to £10k for those earning between £150k and £210k.
In essence these changes mean that for every further £2 earned income over 150k, pension tax relief available will drop by £1.
As the government has also lowered the lifetime allowance to £1million most senior health professionals are finding their traditional retirement planning seriously constrained.
Recent statistics have highlighted that the average pay of an NHS consultant is £112,225.
Therefore it is highly likely that the reduction of the annual allowance will affect up to 50% of NHS consultants because all income is counted against the limit including private practice earnings, investment, rental income and even employer contributions.
The last potentially being the most surprising, and unaccounted for, by many as this amount has not traditionally been included when calculating your annual allowance.
In addition to the changes to the annual allowance, the reduction of the lifetime allowance will ensure that most doctors who are approaching the end of their career are likely to have contributed the maximum amount to their potential pension contributions under the NHS pension scheme before restrictions apply.
A useful rule of thumb is this; if you are expecting to have an income of £40-45k or over in retirement it is likely you will be affected by the recent changes.
Therefore, it’s important to begin planning your finances for retirement sooner rather than later.
We’re increasingly finding our clients strongly considering deferring their NHS pension scheme membership between the ages of 55-60 and working privately full time until retirement.
They cite two reasons for doing so; the increasing cost of insurance premiums to do private work means they have to do more of it before the costs can be justified and, perhaps more importantly, they are seeing a pension scheme which is not offering the same benefits it once did.
Many had previously seen the pension scheme as a key reason to remain with the NHS, if they have contributed the maximum amount some have begun to question why they should remain within it.
We’re increasingly seeing clients turning to private practice in a bid to fund their retirement through contributions to a variety of additional methods such as ISAs, shares, investment portfolios or VCTs etc.