Dental specialist financial adviser Karen Watson-Brown highlights the potential benefits surrounding partial retirement.
For members of the 1995 NHS scheme, having the flexibility to choose partial retirement can be a massive advantage that allows dentists to tailor their work to suit their personal circumstances.
What is partial retirement?
Partial retirement allows an NHS dentist eligible for retirement to carry on working after their pension savings have been accessed. In 2023 the NHS reviewed and extended retirement options for members in the 1995 section of the scheme and enhanced the offering for 2008 section members and 2015 scheme members. Previously members of the 1995 section only had options to protect pay should they choose to step down to positions of less responsibility.
In 2023 the scheme added a retire and return option, as well as partial retirement – options that were already available in the other parts of the scheme. Each option has its own financial implications. It is therefore important to fully understand this when planning for retirement.
How does it work for members?
There are currently two different pension schemes, the legacy scheme made up of the 1995 and 2008 sections, and the 2015 reformed scheme. The scheme the member is in depends on when they joined. Many dentists currently at retirement age, will be in both the legacy section and the 2015 scheme, and therefore eligible to take partial retirement. Technically officers require a 10% drop in pensionable pay. However practitioners, which will include most dentists, need to take a 10% drop in commitment.
Previously partial retirement was only available to members of the 2008 and 2015 NHS pension schemes. As of 1 October 2023, members with the 1995 section benefits can also take partial retirement. These changes have allowed members to partially retire and claim up to 100% of their pension benefits from any section or scheme.
Why do dentists take partial retirement?
Taking partial retirement can offer financial benefits and is also a lifestyle choice for many dentists. It allows them to slow down a little and create free time to do other things, while continuing to practise dentistry.
There are a number of reasons why a dentist may benefit from partial retirement, rather than full retirement. For some, it offers an alternative if giving up working altogether is not financially viable at present. Many of my dental clients are paying for their children’s university fees or have other financial obligations.
For others it may be that they wish to make space in their lives to spend time with loved ones, learn new skills or have a change of lifestyle. And for many, it may be that the thought of walking away from the workplace entirely is simply too daunting – partial retirement allows for an easier transition.
What are the financial benefits?
Historically members of the 1995 NHS pension scheme had to take the whole of their pension when it came to retirement. Now that is not the case, anything from 20% can be taken.
For members of the 1995 and 2015 schemes, when partial retirement is taken members can choose the benefits they take and from which scheme. Many dentists opt for the 1995 scheme due to the penalties applied to the 2015 scheme. If their 1995 scheme provides sufficient income to meet the member’s needs, then the 2015 scheme remains untouched. Following partial retirement, members now have the option to still contribute to the 2015 scheme based on their reduced NHS earnings.
Example one
To give an illustrative example of how this can be financially beneficial, let’s imagine an NHS dentist who is a member of both the 1995 and 2015 scheme, earning £90,000 per annum (PA). They would at the time of writing pay 13.5% of their NHS earnings towards the cost of their pension, which equates to £12,150 PA.
This is however due to change from April 2024 to 12.5%. If they opted for partial retirement, they could use their retirement money, reduce their working hours, and still maintain their annual income. They would basically still earn the amount of income but for fewer working days.
Example two
For another example, let’s imagine an NHS dentist who is currently working five days a week earning £90,000 (before tax), but now wants to drop their working week down to two and a half days for a better work-life balance. However due to family commitments they need the same amount of money coming in – to many this may sound unachievable.
However, let’s assume that said dentist’s 1995 NHS pension will provide an annual income of £45,000 PA, and by halving their working week from five days to two and a half, they would now be earning £45,000. Their NHS pension could hypothetically provide them with the other £45,000 – depending on how much was already in their pot. Therefore, the dentist could still be earning £90,000, but now only working two and a half days.
They then have the option of contributing to the 2015 scheme, but instead of it costing them £12,150 it will now only cost them £4,500, as the contribution rate is based on their reduced NHS earnings and will drop from 13.5% to 9.8%. This is a win-win situation for the dentist and their family, and of course any income generated from private work is completely separate.
What is the best way to get started?
A detailed financial review is a good place to start, to discuss any goals and help establish how to achieve them. A dental specialist financial adviser can use cashflow modelling tools to provide an overview of how much money will be needed.
To start the process for partial retirement, members will need to go onto the NHS portal and complete a AW8 retirements benefits application and the partial retirement supplementary form, then send these to their employer.
Early retirement – pros and cons
Many of my clients are now choosing to opt for early retirement – the minimum pension age for most NHS members is 55 years old. Pension benefits are reduced if they are paid out before the member reaches their normal retirement age which is: 60 years old for the 1995 scheme, 65 years old for the 2008 scheme and state pension age or 65 years old (whichever is later) for the 2015 scheme.
While taking early retirement will have an impact on pension benefits, how much of a reduction a dentist is willing to take ultimately comes down to personal circumstances. For example how big their pension pot is, how much they need to live on, what they want to do in retirement and what their aspirations for work-life balance are.
Seek guidance from the specialists
Retirement is a big decision for any dentist and talking to a specialist dental financial adviser who fully understands the complexities of the NHS pension scheme as well as the often-complex nature of a dentist’s income can be invaluable when making partial retirement plans. The specialist guidance offered can help dentists to form a comprehensive financial overview and fully understand their options and the implications of making this very personal decision.
For information and guidance on NHS benefits and advice on general retirement planning, 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.
