As a Foundation Dentist you have the opportunity to be a member of the NHS Pension Scheme. You may have heard that there have been changes to the scheme in the last few years, but how exactly does the new “2008 section” scheme work for today’s young dentists?
There are essentially two versions of the NHS pension, and this depends on whether you are salaried (so on your Foundation Year or working in a hospital position) or an associate. Both versions are ‘defined benefit’ schemes, meaning that the benefits that you receive at retirement are dictated by how long you work within the NHS, and how much you earn.
‘Accrual rates’ are important in calculating your pension benefits, as they essentially translate your length of service in the NHS into pension benefits. The accrual rate of the NHS scheme is 60ths, meaning that if you work for 20 years, you will get 20/60ths of your ‘pensionable pay’ at retirement.
For salaried dentists, your pensionable pay is your salary at retirement, and for associates, an adjusted average for your whole career will be used. This is to reflect the fact that most associates reduce their workload in the few years leading to their retirement. If you work as both a salaried and associate dentist over your career, you build up a partial entitlement in each version of the scheme.
How much does it cost?
Deductions will be made from your earnings to cover the cost of your NHS pension. The amount you pay depends on your earnings, with higher earners paying more. The contribution bands are:
£26,558 – £48,982 – 8%
£48,983 – £69,931 – 8.9%
£69,932 – £110,273 – 9.9%
£110,274+ – 10.9%
When can I retire?
The scheme recently changed the retirement age from 60 to 65. It is possible to take benefits earlier than age 65, but you will be penalised for doing so.
What will happen to the scheme in the future?
There has been a lot of publicity recently about planned changes to public sector pensions, and unfortunately the NHS scheme is not immune from this. It is likely that over your career, the scheme will be become less generous as the Government attempt to curb its spending, or even disappear altogether. It is possible that any benefits you have already accrued will be protected, but it is prudent to regularly review your pension benefits and make your own arrangements if required.
What are the alternatives?
Some dentists plan to work to 65, but it is fair to say that the vast majority would like to retire at 60, if not earlier. It is also important to remember that the NHS scheme may not exist for your whole career, and also if you opt for a career in private practice, any years spent here will not build up any entitlement under the NHS scheme. This is where private pension planning becomes essential to maintain a comfortable standard of living.
The fundamentals of a pension plan are very simple: you put money into a savings fund, which aims to grow in value and at retirement you convert the fund into a regular income payment, which will replace part, or all, of your earnings from employment.
It is possible to choose a different provider, or investment funds, each time an investment is made and in this way a balanced portfolio of pension investments can be built up over a number of years, although consideration should be given to the charges associated with establishing new pensions or entering new funds.
Tax relief is granted on pension contributions and the effect is obtained in different ways depending on whether you pay only basic rate tax or whether some of your income is charged at the higher or additional rates.
Starting early is the best route for options at retirement and your independent financial adviser (IFA) will be able to advise you on this.
Written by Kat Wainwright DipPFS, Dental Student Adviser at MedDen Financial Services, who are specialist Independent Financial Advisers offering a full range of financial planning to young dentists. For further information please visit www.meddenifa.com or email firstname.lastname@example.org.