A guide to dentists’ finances, part five
Part 5: Countdown to retirement
In this final article, we look at the steps dentists should be taking over the weeks, months and years leading up to retirement.
7-10 years from retirement
Write to NHS Pensions and any private pension providers to find out your current and projected benefits, along with the Department of Work and Pensions to obtain your state pension forecast. At this stage there is still time to make changes and additional plans to ensure you achieve your target retirement income.
3-5 years to retirement
If you are relying on any savings and investments to provide you with an income, now is the time to review your portfolio.
You might want to reduce your assets' investment risk to protect against sudden market movements, while using any spare cash to reduce outstanding debts such as mortgages, loans or credit cards. Alternatively, you may prefer to use the lump sum payment from your pension to cover these debts. However, it should be noted that the higher the lump sum payment taken the lower the pension payable.
1 year to retirement
Check what notice period your practice agreement requires you to give partners, and begin making plans for how you will take your share of capital out of the practice, as there could be a Capital Gains Tax liability.
You will also need to give relevant notice to your NHS Pension Scheme that you plan to retire and start drawing your pension.
You may also want to review other policies you hold, such as locum insurance and income protection, as they may no longer be needed.
3 months to retirement
Complete the relevant forms ñ which can found at www.nhsbsa.nhs.uk to begin the process of receiving your NHS Pension. Your benefits will include a monthly pension linked to your service and salary, which will increase each year in line with the Consumer Prices Index. You will also receive a tax free lump sum (optional for those on the 2008 scheme). On your death a dependentís pension will be paid to your surviving spouse, registered civil partner or nominated qualifying partner, along with a childrenís pensions until they reach the age of 23.
If you have other pension arrangements, such as personal pensions, the benefits can be taken in a number of ways, such as buying an annuity which can include provision for a spouseís benefit and index linking. Depending on your lifestyle, for instance if you have health problems, you may be able to get a better annuity rate. In both instances it is important to shop around to ensure you get the best annuity rates.
Another option is income drawdown where, rather than buying an annuity, an income is paid directly from your pension fund. Some people will not feel comfortable with this option as the benefits are not guaranteed and if the underlying investments in the pension fund do not perform well this could lead to a reduced income in future years.
Alternatively you may decide that you donít need the income from personal pensions when you retire and prefer to defer taking the benefits until much later in life. HMRC has removed the requirement to take your pension benefits by age 75, however individual pensions providers may implement their own restrictions.
The day arrives
When you receive your tax free lump sum, make sure you reassess your position regarding inheritance tax and take appropriate measures to protect your estate against tax charges on death.
Finally, enjoy your retirement!
The above information does not constitute financial advice. If you would like more information or need specialist financial advice call Wesleyan Medical Sickness, which specialises in financial services and products for dentists, on 0800 980 5462 or visit the website at www.wesleyan.co.uk/dentists.