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The NHS Pension Scheme (NHSPS) explained
Read about the NHS pension scheme which forms the bedrock of most GPs financial planning.
The NHS Pension Scheme (NHSPS) is one of the finest occupational pension schemes available and forms the bedrock of most doctors’ financial planning strategy.
We are assuming at this stage that you will have joined the NHSPS prior to April 2008 and therefore will not have joined the “new” NHSPS.
CONTRIBUTIONS Between 5 – 8.5% of your superanuable earnings (depending on the level of your earnings) go towards your pension and your contributions receive income tax relief.
NHSPS BENEFITS
CALCULATING PENSION BENEFITS Hospital post & salaried GP post pension contributions are claculated differently to that of a GP partner. The somewhat confusing term 'Officer' is widely used in the NHSPS literature and refers to anyone who is EMPLOYED (e.g. hospital posts and salaried GPs).
General medical practitioner: accrural basis = 1.4% of “total dynamised career averaged NHS pensionable earnings” for each year of service (pension) plus 4.2% as minimum lump sum 1.4% x total dynamised income PLUS a lump sum of (3x Pension). The Dynamising factor takes into account inflation and other variables.
Salaried GP: accrural basis = 1/80 x final salary for each year of service PLUS a minimum lump sum (of 3 x annual pension)
Worked example: A hospital doctor that becomes a salaried GP having joined the NHS at age 24 and retiring at 60 years of age.
Assume final earnings at retirement are £90,000
Ø Total Service = 36 years Ø Pension = 36/80ths x £90,000 = £40,500 pa (Index Linked) Ø Lump sum = 3 x £40,500 = £121,500 (Tax Free)
Worked example: A GP partner who joined the NHSPS at age 24 and retires at 60 years of age
Assume dynamised career average is £ 90,000 pa
Ø Total (revalued) career earnings = £3,240,000 Ø (36 years x £ 90,000) Ø Pension = 1.4% x £3,240,000 = £45,360 pa (index linked for future years but is taxable) Ø Lump sum = 3 x £45,360 = £136,080 (not taxable) Ø Additional lump sum available subject to computation
Pension Simplification was introduced in April 2006 and introduced a Standard Lifetime Allowance (SLA). This was initially set at £1,500,000 and will rise broadly in line with inflation. When an individual takes there pension benefits, the benefits are assessed against the prevailing SLA. Any excess will be subject to the Lifetime Allowance Charge, which in effect is a tax at 55% on the excess.
The Practitioners pension benefits shown above would absorb £931,500 or 56.4% of the current allowance NHS PENSION SCHEME (EARLY RETIREMENT) From April 2010 voluntary early NHS retirement from age 55 is possible, but NHS pension benefits will be actuarially reduced if taken prior to age 60. .
No reduction applies for ill health retirement'
Please note: If an existing member leaves the NHS for 5 years or more, and then comes back, (a disqualifying break), they are unable to rejoin the existing NHSPS but do have the option to join the “new” NHS Pension Scheme MAXIMUM SERVICE ALLOWED Pensionable “service” may not exceed….
FUNDING FOR MAXIMUM PENSION BENEFITS (practitioners / salaried NHS appointment) To obtain maximum benefits from the NHS pension scheme 40 years service at 60 is normally needed. Doctors do not to qualify at age 20 and therefore will have a pension shortfall at age 60. This can be made up by making additional contribution:
NHS EARNINGS - NEW ADDED YEARS SCHEME - STAKEHOLDER/PERSONAL PENSIONS
But be aware of the Standard Lifetime Allowance (SLA) (currently £1.65million) and do not exceed it!
ILL HEALTH RETIREMENT Unfortunately, not everyone will work in good health to their normal retirement date and therefore the NHSPS provides pension benefits for those who are forced to retire early on the grounds of ill health. Therefore, we have outlined details of the ill health retirement package.
Prior to 31st march 2008 an ill health retirement pension would be payable when permanently incapable of discharging duties efficiently due to physical or mental infirmity. Ill health pension would be enhanced depending upon length of service.
From 31st March 2008:
Tier Two
Tier One
Terminal Illness A member, who is terminally ill and does not expect to live longer than 1 year, can apply to exchange all of their pension for a one-off, usually tax-free, payment.
DEATH BENEFITS (Overview) Worse still death (which the NHSPS class as permanent ill health) can also catch us before we reach or normal retirement date.
There are 3 elements - what are they?
DEATH GRATUITY Death in pensionable employment before 70
Death after pension becomes payable
WIDOWS & CIVIL PARTNERS BENEFITS
WIDOWERS & CIVIL PARTNERS BENEFITS Largely as for widows but only based on service since April 1988. ‘Past’ service may have been bought up to July 1989. Pre 88 service may be taken into account if demonstrable dependent widower/civil partner. Widows, widowers and civil partners pension are now known as survivors pension.
DEPENDANT CHILDREN’S ALLOWANCES Child = under 23 or in full time education
PENSION SIMPLIFICATION Pension Simplification introduced an annual allowance, this means that any UK relevant Individual can invest up to £3,600 pa or 100% of their earned income and obtain tax relief on those contributions. This is subject to a cap of £225,000. If an individual has qualifying income in excess of the Annual Allowance, and contributes in excess of £225000 they will normally be subject to an Annual Allowance Charge, which will nullify the excess rate tax relief.
NEW JOINERS ON OR AFTER 1/4/08 “NEW NHSPS”
PENSION FOR A DOCTOR’S SPOUSE If a doctor is employing his wife it is important to consider private “stakeholder” pension arrangement, which can be very attractive as both a savings vehicle for retirement, and a way to reduce your tax bill.
Provided courtesy of Kelvin Turner from Medical Money Management wwww.mmmnet.co.uk
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HDR News
Venue: HRI
Date: 9/9/08 (Lunch 13:00 and HDR start 14:00)
Topic: PBL 1 delivery and PBL 2 planning
Preparation: If you were unable to attend HDR on 2/9/09 then Read the PBL1 case scenario (click) and identify the clinical, non clinical and professional issues it raises.
Choose a learning need that matches to the curriculum, address it and bring it to the PBL feedback group.
News & Updates
The News page (click) - Keep up to date with what is happening, as it happens, whether it’s changes to the e-portfolio, nMRCGP assessments or our website.
HDR handouts (click) - Missed HDR? You can now catch up by reading the handouts.
Next Trainers' Workshop
Venue: Church Lane Surgery
Date: 11/9/08
Topic:
1. Hot topics and burning issues. 2. E-Portfolio Curriculum matching. LTFTT. 3. Reflections on ARCP panels & Educational Supervision. 4. Trainer participation in HDR. 5. Feedback from Q&A meeting with Deanery and Trust .
Preparation: Read the excellent document Making the e-portfolio work for you (click) which outlines what your Registrar should and should not be doing!
Educational Supervision Deadlines
The next deadline is September 26th (Supplementary Yorkshire Deanery Review). Please read our website disclaimer (click). |