Wesleyan Financial Services explains how dentists can identify a pension gap, assess their retirement income needs and plan ahead for the retirement they want.
For dentists, planning for retirement can be more complicated than simply deciding when to hang up the loupes.
You may have benefits in the NHS Pension Scheme (NHSPS), one or more personal pensions, savings, investments and perhaps a dental practice that you intend to sell. The challenge is understanding how all these different pieces come together – and whether they’ll provide enough income for the retirement you have in mind.
What is a pension gap?
A pension gap is essentially the difference between the income you expect to have in retirement and the amount you are likely to need. That sounds relatively straightforward. In reality, identifying a potential gap requires you to think about both sides of the equation.
First, what is your retirement likely to cost? Your plans might include travelling, helping children or grandchildren financially, moving home or simply having more time to enjoy the things you’ve worked hard for.
Then there’s the question of where that income will come from. For many dentists, the NHSPS will form an important part of your retirement income. But it may not be the only source. Personal pensions, the State Pension, savings, investments and practice sale proceeds could all have a role to play.
Until you bring those different elements together, it can be difficult to know whether there’s a gap at all, never mind how large it might be.
Why dentists can be particularly vulnerable to a gap
Dental careers rarely follow a perfectly straight line. You might spend part of your career carrying out NHS dentistry before increasing your private work. You may become a practice owner, reduce your clinical hours later in your career or decide that you’d like to step away earlier than originally planned.
Changes like these can have an impact on your retirement planning. For example, moving towards private dentistry could mean that you’re building up fewer future benefits in the NHSPS. If you haven’t considered how you’ll replace that element of your retirement provision, a gap could begin to emerge.
Equally, deciding that you would like to retire earlier can mean needing your retirement income to last for longer. Depending on when benefits are taken, it could also affect the level of pension income you receive.
The important thing is to understand the implications of career decisions as you make them, rather than discovering a shortfall when retirement is just around the corner.
Start with the retirement you actually want
One of the most useful ways to approach retirement planning is to begin with your goals rather than your pension.
When would you ideally like to stop working? Do you see yourself retiring completely or gradually reducing your clinical commitments? What would you like to do with your time? And what level of income might you need to make those plans possible?
Remember, your spending is unlikely to remain static throughout retirement. The first few years might be relatively expensive if you plan to travel or make major purchases. Your spending patterns may then change as you move through later life.
Mapping out those different stages can give you a much clearer idea of the income you may need – and whether your existing arrangements are likely to provide it.
Know what you’ve already got
The next step is to take stock. That means understanding your NHS pension benefits and when you can access them, checking personal or workplace pensions you may have accumulated during your career, and factoring in your State Pension entitlement.
It’s also worth checking whether you have any pensions from previous employment that you’ve lost track of over the years.
Beyond pensions, consider your wider financial position too. Savings and investments may provide additional flexibility, while practice owners may be expecting the eventual sale of their business to contribute towards retirement.
The aim is to build one joined-up picture, rather than looking at each asset in isolation.
If there is a gap, time can be valuable
Discovering a potential shortfall doesn’t necessarily mean your retirement plans need to be abandoned. The earlier you identify it, the more time you may have to consider your options.
Depending on your circumstances, that might mean reviewing how much you’re contributing to a personal pension, looking at other savings and investments, reconsidering your intended retirement date or thinking about how you transition out of dentistry.
For practice owners, it can also mean looking ahead at your exit strategy and considering how the value and timing of a practice sale fits into your wider retirement plan.
There is no single solution that will be right for every dentist. What’s important is understanding where you stand while there is still time to make informed decisions.
Make every pension decision count
Pensions can easily find their way to the bottom of the to-do list, particularly when you’re balancing patients, practice responsibilities and life outside dentistry.
Try asking yourself these questions:
- Do I know how much income I’m currently on track to receive in retirement?
- Do I know how much income I’ll actually need to fund the retirement I want?
- If there’s a difference between the two, do I have a plan for closing it?
If you can’t confidently answer all three, it may be time for a retirement planning check-up.
A specialist financial adviser from Wesleyan Financial Services can help you look at your pensions alongside your wider finances, understand whether you’re on track and build a plan around when and how you want to retire.
After all, the purpose of pension planning isn’t simply to accumulate a certain amount of money. It’s to give yourself greater choice over what life after dentistry looks like. Get personalised pension guidance today.
Please note: charges may apply. You will not be charged until you have agreed to the services you require and the associated costs. Learn more at www.wesleyan.co.uk/charges.
This article is sponsored by Wesleyan Financial Services.
