Rowan Thomas speaks to Magdelena Harding about the importance of the pension for dental professionals and the key pitfalls to look out for.
Please introduce yourself.
I am Magdelena Harding, specialist financial adviser for Wesleyan Financial Services. I specialise in giving advice to dentists and the dental profession.
It’s currently National Pension Awareness Week. Why is there such an emphasis on understanding pensions? And why do you think that’s so important for dentists?
I think pensions are the magic key to great financial planning and retirement. So with the national initiative, it’s all about aiming to improve the financial outcomes of those saving for their retirement.
Long-term financial plans are easily left for another day, particularly when dentists are so busy in the practice. But the earlier you start planning for your retirement, the less you actually need to personally contribute to reach your personal goal. I always say it’s much cheaper to start earlier.
What would you say are the benefits of having a pension?
It’s an excellent way for dentists to save for the longer term. It is incredibly tax efficient – not just from an income tax or corporation tax perspective, but potentially even for inheritance tax.
With pensions as well as with investments, the longer you are in the market, the better. So saving for that longer term and being in the market longer is a great benefit for savings as well.
There have also been a lot of changes this year in relation to pensions. What do you think those mean for dentists’ retirement plans?
Jeremy Hunt made some changes within the spring budget, one being the personal annual allowance. You used to be able to put £40,000 a year into your pension. This has been increased to £60,000, which is fantastic because it increases the tax-free savings you can make.
It’s great news for those relying on the NHS pension but also those with some extra personal pension. So it definitely gives you a lot more wiggle room, and especially for those who were solely in the NHS and very close to this limit.
Plans were also revealed for the lifetime allowance. This won’t apply for this tax year and it will also be removed completely from 6 April 2024. So again, great news for those looking to boost their long term savings, as there are more opportunities and less tax implications.
However, while the lifetime allowance has been removed, there is still a tax-free lump sum limit, which may affect how you access your pension. So seeking specialist advice here would be really really beneficial.
There’s also been a lot of changes to the NHS pension scheme this year, especially around partial retirement. This has been with the aim of making the process more flexible for healthcare professions.
However, the temporary suspension of abatement has ended. This is essentially the process in the NHS pension scheme that restricts your pension payment if you return to work. This now could apply.
Are there any particular pitfalls with pensions that dentists need to be aware of?
There are. Our dentists are very fortunate to have various income streams, but this can make it a little bit harder to understand.
One of the questions would be, for instance, are you solely rely relying on the NHS pension? Do you also have a personal pension? Have you got any other assets or savings or investments that potentially could help towards your retirement or your pension funds? Will you be looking at selling your practice, and are the proceeds of the sale of the practice part of your retirement plan?
Another big pitfall is that we see a lot of NHS practices being converted into private practices. What I find is that there’s so much going on, potentially some of the dentists are forgetting to think about replacing the NHS pension scheme. We need to make sure that you continue putting money into a pension to replace this.
It’s important to understand that you won’t lose the NHS pension that you have already accrued. But you will no longer be able to add additional amounts to it. Or if you still have NHS patients, you may not be able to contribute as much to it. Therefore, we need to fill these gaps in to make sure that you are staying on track for your retirement.
If you are also relying on the NHS pension and decide to kind of retire earlier, there will be an accrual reduction in your retirement income. So again, it’s about reviewing how we can fill that gap.
You could leave that NHS pension until full retirement age and get the full amount. But then how do you fill the gap in between? You could take the lower amount, but then there could be a gap with how much you need. Again, it’s important to look at where is the best place to take that money from to fill that gap.
One of the key things is I cannot stress this enough is to review your retirement planning and your provisions on a regular basis. Things change, your circumstances change. And it’s so, so important to just have a quick check. It doesn’t have to be hours on end. Make an appointment, see someone and review it to make sure everything is still right for you. Make sure that you have taken advantage of any tax efficiency or legislation changes has happened.
And remember, I’m a firm believer that pensions are the key to a successful financial plan.
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For more advice on pensions, visit www.wesleyan.co.uk or call 0800 316 3784.
