Money Matters

Eight tips on planning a comfortable retirement

The NHS pension scheme continues to be one of the best pension schemes available, providing a pension and a lump sum at retirement, along with spouses and dependents benefits. The scheme is heavily subsidised by the NHS which contributes 14% of pensionable pay into the scheme.

These benefits form the foundation of pension planning; however with many consultants having significant private income it is important to consider other arrangements to supplement the basic pension. Consequently there are important decisions to make when considering how best to boost pension provision.

1. Start early. For every five years of delay in funding a personal pension future premiums should be doubled. Eventual benefits and the cost of these benefits is dependant as much on the amount of time invested as the amount invested.

2. Consider your options. Pension planning can take many forms. Buying additional pension benefits through the NHS, personal or stakeholder pensions, investing in property or utilising other investments. Look at your own personal circumstances to decide what is right for you and take advice.

3. Review regularly. Review your existing provisions at least annually. As income, family circumstances, personal requirements or legislation change it is important to ensure plans in place remain appropriate. Contributions should be increased in line with increased earnings over time. It is easy for income to rise over time and for pension contributions to be left behind.

4. Compare charges and performance. Pension charges have reduced over the years, so keeping abreast of how competitive your pension is with respect to charges and performance is imperative.

5. Diversify. Ensure that you don’t have all your eggs in one basket. Retirement planning doesn’t have to mean pensions. Pensions provide the most tax efficient route to plan towards retirement but are not without restrictions. Investing into ISA’s, may not give the same tax benefits at outset but generally is tax free at retirement and allows access to greater capital sums at retirement than one would normally get from a pension.

6. Tax implications. Consider both you and your spouse’s tax status now and in retirement. Having all income in retirement from one spouse is unlikely to be tax efficient. Try and equalise incomes to ensure that both partners make best use of any tax allowances.

7. Be Realistic. It is often necessary to invest 15% of income or more to enjoy a financially secure retirement. For consultants working privately it costs approximately 20% of taxable private earnings to replicate the benefits that the NHS pension scheme offers.

8. If you can’t retire when you want to, aim to retire later. Normal retirement age for the NHS pension scheme is 60, retiring sooner than this can prove to be very expensive as benefits are reduced. For consultants working beyond 60 there are few reasons not to take pension benefits. Any increased benefits for working beyond 60 are overshadowed by the pension income that could have been received and has been lost.

Simon Dickerson is a director of Medical & Financial, which provides independent financial consultancy to doctors. Contact him at [email protected], or visit www.medicalandfinancial.com for more information.

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