Specialist financial adviser Aaron Prested from Wesleyan Financial Services discusses the potential changes to death in service benefits when switching from NHS to private dentistry.
None of us want to think about the worst things that could happen in life – it is uncomfortable and upsetting. However, it is important to have plans in place. Then, if the worst were to happen, your loved ones would be financially secure.
Death in service describes a type of life protection benefit that offers varying entitlements, depending on the employer. Although discussion involving death in service benefits is a topic many people would rather leave for another day, there are some important considerations to be aware of.
There is a lot of literature available prompting any dentist considering moving from NHS to private, to think about their income protection needs and their pensions; but the loss of death in service NHS benefits, is an element that is often overlooked. Any practising NHS dentists who are thinking about making the switch to private practice should take into account the changes to their death in service NHS benefits once they are no longer classed as active members.
Death in service benefits for active members
Active members of the 2015 NHS pension scheme (NHSPS) are entitled to a series of benefits. The first of which is two times their pensionable earnings as a lump sum payment.
To give a practical example, an NHS dentist earning £80,000 per year as pensionable earnings would effectively receive £160,000 as a lump sumin the event of their death. This would be paid to whoever the beneficiaries may be – a spouse or children.
Other death in service NHS benefits for active members of the 2015 scheme include a spouse’s pension which is approximately 33.75% of the members enhanced ill health retirement pension. There are also benefits for children under the age of 23.
An illustrative example of this would be to imagine a dentist with a spouse and two dependents under the age of 23. Said dentist has built up a pension of £10,000 per year, has 10 years until retirement and earns £40,000 per annum. Their enhanced ill health pension would be £13,700 should it be claimed now. In the event of death, a spouse would receive a pension of 50% (£6,850) and each child would receive 25% each (£3,425) up to the age of 23.
Some dentists may also have service in the 1995 and 2008 legacy scheme. In the event of death, their dependants would also be entitled to benefits from this scheme.
Death in service benefits for deferred members
These benefits change significantly for deferred members. As soon as a dentist has been out of the NHSPS for more than one year, they are classed as a deferred member. This means that they will no longer qualify for the same benefits and a large amount of their death benefits could be lost.
It is important to note that the benefit will not be lost completely, but often people are not aware that a reduction will happen. When it does, it invariably comes at an already extremely difficult time following a bereavement.
To better illustrate these changes, let’s take the above example and imagine that they are thinking of moving from NHS to private. As a deferred member they would no longer be entitled to the enhancement on their ill health pension so the spouse’s pension would drop to £5,000. The death in service lump sum would also drop from £80,000 to £20,250.
How to bridge the gap
There are options for dentists moving on to private dentistry to plug that gap, such as taking out a life insurance policy for example.
A life insurance plan can be used to replace lost death in service benefits which can help ease the financial burden on dependants at a time they need it most. If you’re operating as a limited company, there may be even more tax efficient options to replace the loss of your death benefits.
Get specialist advice
It is therefore very important for any dentist that has a family and is planning to leave NHS dentistry to carefully consider their position on death and to discuss this with a specialist adviser who understands the complexities of the scheme and can offer specialist guidance.
For advice on replacing the death in service benefits you receive from the NHS, you can book a no-obligation financial review with a dental specialist financial adviser at Wesleyan Financial Services by visiting wesleyan.co.uk/lifes-journey or calling 0800 316 3784.