Get your burning questions answered by specialist financial adviser, Paul Barnfather, about pension tax allowance and NHS pension partial retirement changes that are coming into effect.
This tax year will bring about a plethora of changes and resulting opportunities when it comes to how dentists can save for long-term financial goals and set themselves up for a flexible and thriving retirement.
Here’s a breakdown of what you may need to consider for future retirement planning…
What’s changing with pension allowances?
In the Spring Budget, the Chancellor of the Exchequer, Jeremy Hunt, made a few bombshell announcements in regard to pension allowances.
The big hitter was that the £1.07 million Lifetime Allowance would be abandoned altogether, in a move the Chancellor said would mean an estimated 80% of NHS doctors will not receive a tax charge. This of course, also spells good news for dentists who could also benefit from significant tax savings.
The Annual Allowance (AA) – the amount of money that people can save into their pension every year without paying tax on it – has increased from £40,000 to £60,000. This 50% increase is welcome for the many dentists struggling to remain under the former threshold, the number of which has been increasing year on year.
In relation to the AA, there has also been a realignment of the Consumer Price Index within NHS pension revaluation. The NHS has moved the scheme revaluation date from 1 April to 6 April, meaning it falls into the next tax year and ensures the AA is measuring actual growth and not inflation increases.
The final pension allowance announcement from the Spring Budget was around the Money Purchase Annual Allowance – the limit on additional personal pension contributions once they have been accessed flexibly. It has increased from £4,000, back to its original level of £10,000.
The £4,000 was a disincentive for many who wanted to return to work because it was a barrier to rebuilding their retirement savings. It will allow them to work more flexibly.
There are concerns about the permanence of these changes, particularly in the run-up to a general election. The Labour Party has been quite vocal in that, should they come into power, they would reverse the abolishment of the Lifetime Allowance.
This is speculation, but external factors and the changing landscape are exactly why regular financial reviews with an adviser are so important.
What’s changing with the NHS pension scheme?
There have been changes in relation to how dentists can partially retire due to a recent government consultation.
While dentists previously had the option of phased retirement or to retire and return to work (unless they were in the 1995 section of the old scheme), there have been changes to make this process more flexible in order to retain experienced healthcare workers.
From 1 April 2023, the temporary suspension of abatement in the 1995, 2008 and 2015 schemes end for most members, meaning abatement (the process within the NHSPS that could restrict your pension payment if you return to work) could apply.
Here’s a breakdown of the varying changes for the different sections of the scheme…
Amendments to the 1995 scheme
There are three proposals from the consultation which will be implemented in the 1995 section of the scheme.
Firstly, members who would like to retire and return to work are now able to do so after a 24-hour break in working and then rejoin the 2015 scheme. This was introduced on 1 April 2023 and will also apply retrospectively, meaning those that have already taken their 1995 benefits will now be able to return to the 2015 scheme.
From 1 October 2023, partial retirement will be an option for members, who will be will be able to access between 20% and 100% of benefits without having to retire and take a 24-hour break. They will however need to have a drop in pay or NHS commitment of at least 10%.
Finally, the 16-hour rule has been removed meaning members are not restricted to working less than 16 hours a week for the first month of reemployment.
Amendments to the 2008 and 2015 schemes
There will be an allowance for 100% drawdown (a way of getting pension income when you retire while allowing your pension fund to keep on growing) instead of the previous 80% to align with proposals for the 1995 scheme.
Also, to help members with additional pension (a flexible way of increasing your NHS pension), it will be ensured that the additional pension is not subject to abatement in the 2015 scheme to make this more in line with the 1995 scheme.
Please note: For those residing in Northern Ireland, the NHS pension changes have yet to be adopted.
What do these changes mean for dentists?
These changes will bring about opportunities and challenges that will be different for every dentist. How this affects you may be very different from how it may affect your colleague due to the intricate relationship between the complexities of the NHS pension scheme, the make-up of your retirement provisions and your retirement goals.
These changes are a balancing act and you need to be fully informed to avoid any potential pitfalls in the future – seek guidance from specialists who understand the complexities of retirement planning for dentists.
You can book a no-obligation review with a specialist financial adviser by visiting wesleyan.co.uk/dental or calling 0800 316 3784.
Please note: Tax treatment depends on individual circumstances and may be subject to change in the future. This article cannot be considered financial advice, which should be undertaken on an individual basis.