Neil Richardson, regional manager at Wesleyan, breaks down the best advice he would give to dentists this Pension Awareness Week.
Running from 9 to 15 September 2024, Pension Awareness Week has kicked off – here are some top tips for dentists when it comes to preparing for future finances.
Top tip number one: begin with the end in mind
The time in your career where you’re thinking about your retirement that will be the most beneficial and make the biggest impact is in your 20s. The money that you save at the beginning of your career when you are first thinking about retirement actually has the longest time to remain invested and therefore grow.
A simple example: think of a young dentist who is 25 and let’s imagine that they were putting £5,000 into a pension plan. If we assume they want to retire at 65, and we make some pretty conservative assumptions about investment returns that aren’t crazily optimistic, by the time that dentist reaches 65 the £5,000 they put in when they were 25 is going to be worth £35,200.
Now let’s say that 25-year-old dentist doesn’t do that, and instead puts the £5,000 away aged 45 instead. If we use the same investment returns and the same retirement age of 65, that £5,000 would have only grown to £13,266.
Top tip number two: understand your NHS pension benefits
At Wesleyan, we’re the biggest and noisiest advocate for how brilliant the NHS pension scheme is, and what a fantastic bedrock it is to any dentist’s financial planning.
Understanding your NHS pension benefits is now more complex than ever before. So the point of this top tip would just be a call to action to dentists to go and get from the NHS pension scheme, or, if you’re in Scotland, the SPPA, a copy of your pension statement showing what benefits you’ve built so far and in what schemes.
After this, go and get some specialist financial advice from someone who can project that forward for you and show you what that’s actually going to be worth in real terms at the point that you would like to retire.
Top tip number three: don’t fall into the tax trap
The UK tax system is one that is absolutely full of different tax traps. They also give you lots of opportunities.
For example, someone earning £125,140 pounds is actually going to be paying a tax rate of 60%. That’s because as soon as you earn more than £100,000, you lose something called your personal allowance at a rate of two for one. So the effective implication of earning £125,140 is that you pay £15,048 on earnings between £100,000 and £125,140. This is really, really relevant to Scotland, where there’s so many different tax bands and tax rates.
Be smart with your tax position. Start to think before the end of the tax year, and reframe any traps and problems that you might have by falling into higher bands as opportunities to plan for your retirement at a cheaper rate than you would otherwise have got.
Top tip number four: protect your retirement
We need to make sure that you are in a decent position if something happens to you that actually stops you being able to work all the way up to your retirement age.
For many dentists in their 50s, they spent their whole career with the 1995 NHS pension scheme and the knowledge that their retirement age was 60. But for anyone younger than that, they’ve been through the McCloud era, and they’re looking at an NHS pension and also a state pension regime that’s now looking at a normal retirement age of 68.
We’re not seeing young dentists is looking at income protection – they know their pension is is not going to come into its fullest until they are 68. What we want everybody to think about is, ‘What if something happens to me next week? What if I actually don’t get the chance to put all those pension contributions away?’
Top tip number five: get organised
I’ve seen a recent article published on Unbiased, which said there’s 1.6 million lost pension plans in the UK with a total wealth of £19.4 billion.
This Pension Awareness week, get organised. Spend the time and energy in keeping yourself up to date. Put an hour aside every year to sit down with a financial adviser and say: ‘Tell me where I’m up to and tell me if I’m on track with where I’d like to be at.’
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