Did you know changes in the NHS pension enable dentists to have a better work-life balance? Thomas Dickson, independent financial planner from Wealthwide, explains how.
Getting the balance right in life is tough to achieve – spending time developing your career in dentistry, versus having time with family, or friends. Or, juggling saving for your future self versus spending for now.
Retirement can bring the same challenges. There’s the enormous bonus of having the time from your previous working day to do all the things you want to do or travel to the places you’ve wanted to go to. But on the downside, you lose your income, being around people you enjoy working with and a sense of purpose or fulfilment.
A gradual retirement
This is why dentists are increasingly opting for a gradual retirement and having the best of both worlds. And fortunately, NHS pensions have recently made some great improvements to the pension scheme, which allows for a more phased retirement.
Since 1 April 2023, members of the 1995 Section (with a retirement date of 60) can take their pension, carry on working in the NHS and continue to build up benefits in the 2015 Scheme. From 1 October 2023, members of the 1995 Section that are over the age of 55, will also be able to take partial retirement, meaning you can take some, or all, of your pension (20% to 100%) without having to leave your job.
Working out the numbers
Let’s take an example of an associate dentist in practice who’s 56 and earning £80,000 a year. They no longer want to work full time, but are not sure they can afford to cut back their hours. They are looking forward to an NHS pension at 60 of £30,000 a year (equivalent to a 30-year membership). One option they have is as follows:
- Take their NHS Pension (1995) four years early
- This reduces the pension by 18%, providing an income of £24,600pa
- The pension commencement lump sum is reduced by 12%, providing tax-free cash of £79,200
- They can now work three days a week with the following income:
- Associate income – £48,000 (£80,000 x 3/5)
- NHS pension – £24,600
- Total income – £72,600.
- This three-day week leads to a shortfall in after tax income of only £4,440
- Provided you were able to deposit or save the £79,200 tax efficiently and generate interest or returns of 5-6% a year, in this example, the net income would be the same
What would you do more of?
There are many advantages to this approach. You are likely to have more time to look after your health and retain fitness in your later 50s. You also get a chance to see what you can do in those extra two days a week.
What would you do? Long weekends away, train for a triathlon, spend time in your garden, get involved in a charitable project, increase your CPD hours? Or perhaps you’d just like more time to yourself to relax.
As you can now remain a member of the NHS pension, you can continue to accrue benefits. In fact, with this new lifestyle, there is a significantly greater chance that you might want to continue working beyond 60.
I was always told that the key to success was to find a job and a work lifestyle that you didn’t want to retire from. So, if you were happy to work to age 63, these extra seven years would generate an additional NHS pension of a further £6,000 a year (from state pension age).
The risk to your pension
The key disadvantage is that by taking this approach, your NHS pension will be slightly lower than if you’d continue to work full time to age 60.
However, we don’t get a second chance at life and we can’t get these years back. I would therefore encourage every dentist to set aside some time to think about what they want and what is really important to them, work out the numbers and create a plan.
Please be aware of the following investment risks
- The value of your investment can go down as well as up and you may not get back the full amount invested.
- When investing your capital is at risk
- Levels and bases of, and reliefs from taxation are subject to individual circumstances and may be subject to change.
- The Financial Conduct Authority does not regulate taxation and trust advice.