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Check out your pension plans

It cannot be repeated too often that doctors need to keep an eye on their pension plans – and to start as early as possible, says Steve Higson

It cannot be repeated too often that doctors need to keep an eye on their pension plans – and to start as early as possible, says Steve Higson

The earlier you start your retirement planning the better – and while articles and presentations can help, there is nothing quite like sitting down on a one-to-one basis with a financial adviser and discussing your own individual circumstances, both current and desired.

Cast your mind back to the time you bought your first house. You needed to consider carefully your income and expenditure and to work out if you could still live once you had paid the mortgage. It's a similar situation as you approach retirement. You need to be prepared for living without a salary and to check that your pension and investment income will be sufficient.

Although there are alternatives to the vehicles chosen for retirement planning, for most doctors the pension is a main ingredient. Many will have at least two – the NHS pension scheme and the state pension. Some may also have additional personal pensions. Being a member of the NHS scheme is an excellent start to any retirement planning with the benefits dependent on your final salary and the number of years you have contributed to the scheme. Add this to expected state benefits and you have a solid bedrock of future income. But you need to know what this bedrock is likely to provide to calculate how much more you need.

Personal pensions

Any additional personal pensions that have been contributed to are normally where the least attention has been applied. Compared to the NHS scheme they can be a big disappointment.

However, by managing your personal pension portfolio you can manage expectations and more importantly try to ensure the money is invested well. As a rule of thumb younger doctors with a long time until retirement should be more heavily exposed to stocks and shares while those approaching retirement may prefer to protect the fund they have built up by switching into lower-risk assets. Obviously which assets and funds are most appropriate will depend on the level of risk each individual is prepared to take and their personal circumstances – a personal pension will provide an income that is ultimately dependent on the size the fund has grown to by retirement, so it makes sense to look after it.

Choosing the right funds takes experience. It's not a case of picking last year's best performer because there's a strong possibility that it won't retain this title next year. What is important is the experience and ability of the fund manager and therefore potential for long-term outperformance.

It's also important to keep an eye on the charging structure of not only the pension plan, but also the funds chosen, as over the long term in particular this can make a huge difference to the final outcome. This principle should also be applied to other investments held.

As mentioned, pensions are not the only vehicles that can be used for producing income in retirement. For many people, the main reason they save money is for their future, so it is likely that there will be an investment portfolio in addition to a pension portfolio. Both need to be reviewed regularly. Recent changes to pension rules mean that pension investment is now more flexible than ever. These changes represent the biggest opportunity to tidy up or indeed start your retirement planning.

The golden rules are:

• Speak to a financial expert who has a clear understanding of the NHS pension scheme and is used to dealing with members of the medical profession.

• When considering what levels of income you require in retirement do not limit your thoughts and calculations to just your pensions; your investments can form a crucial part of this overall figure.

• Remember all income can be taxable – this includes interest and dividends as well as your pensions.

• Consider maximising the NHS pension you will receive in retirement. This is dependent upon:– your years of entitlement – your final superannuable earnings – whether or not you have bought added years.

• Consider additional pension contributions in the light of recent Governmental changes

• Start planning now – it's never too late.

Steve Higson is head of medical services, BMA Services/AWD Chase de Vere

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