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Check your superannuation and plan ahead

Superannuation calculations are complex and in the present climate GPs would be well advised to keep an eye on developments and in particular on cash flow, says Dr John Couch

Superannuation calculations are complex and in the present climate GPs would be well advised to keep an eye on developments and in particular on cash flow, says Dr John Couch

If I have learnt anything about practice finance over the years it is not to get too excited about income rises as one way or another a large chunk of this eventually finds its way back to Government coffers.

Payback time has already begun in the form of higher tax payments. But do not forget superannuation. This dark horse is going to get even darker. One problem of the current method for calculating partners' superannuable income is the delay in obtaining a precise figure for each year's contribution. You will not know if your 'on account' payment for April 2007 was correct until around March 2009 – that is after your 2007/8 accounts and superannuation certificate are agreed. I know of several practices that have dramatically under- or overpaid in the past two years. At best this severely dents cash flow. At worst it produces a huge emotional and financial shock.

You must therefore check that 2007/8 monthly payments are more realistic. Base them on partners' 2005/6 certificates. Review actual expenses and income for 2006/7. Amend superannuation proportionately if you feel profit altered. Make a further adjustment if needed as soon as draft accounts are ready. I strongly advise that you consider 2008/9 now.

Although BMA and NHS employers' communication is currently strained, there are important increases provisionally planned for next year. These are unlikely to be delayed. The present proposal is for an increase in employee superannuation contributions to 8.5%. This represents a 41% increase or £1,875 a year for the average salaried GP, £3,000 for partners and even more for higher earners.

There is one more relevant proposal. The existing cap on pensionable earnings for GPs who qualified after 1989 will be removed. This is currently just over £108,000 a year. Although good news for pensions, the immediate reality will be a triple whammy on superannuation payments for these younger GPs. They will pay 8.5% employee contributions on superannuable income over £108,000, against nil at present. In addition a 14% employer contribution will also arise and be individually allocated via the accounts. Therefore 22.5% will be paid on income above £108,000, representing another £2,700 for the average young partner.

So monthly payments from April 2008 will probably rise £156 for salaried doctors, £250 for average-earning older partners and £475 for younger partners. High-earning younger partners will end up paying much more than this, for example £890 per month for those with superannuable incomes of £140,000. Tax relief will ease the load for all, but for the self-employed will take 21 months to kick in.

Start planning next year's cash flow now!

Dr John Couch is a GP in Ashford, Middlesex

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