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for retirement

We now know that existing members of the NHS pension scheme will still be able to retire at 60 without penalty, making it likely that this age will continue to be the most popular for us to hang up our stethoscopes.

However, even with the recent, much publicised increases to GP pensions, most of us will see a drop in income of more than 50 per cent when that day arrives. So will you have enough money for a comfortable retirement?

Each situation is unique

There are so many variables that each situation will be unique. First the amount of pension at 60 will depend on two factors ­ length of service and whether you were full- or part-time.

At one extreme, a GP partner who has worked full-time for the NHS since qualification, on average earnings and with no career breaks, may expect an NHS pension of £40k-£50k per annum.

A half-time salaried GP with 10 years of career breaks, excluding maternity leave, may expect a pension of around £14k per annum.

Second, if you have a partner, they may or may not have pension arrangements and once again the variation can be wide. I suggest that for the purposes of this calculation you factor in no more than half of your partner's expected pension at 60.

You really need to be able to manage on your own finances, no matter what eventualities the future holds.

Unless you are female and retiring soon, the state pension will not kick in until you are 65. However, the continuing pension debate must throw some uncertainty on how state pensions will be structured in the future and whether they will be available to all. Decide for yourself whether to include the state pension in your calculations, but remember that for most there is no payment from 60-65.

Third, expenditure varies from GP to GP. If you are frugal you may have difficulty spending your pension. If you have a variety of expensive tastes you are likely to run out of money, however generous the NHS pension scheme has been!

Calculate your income

and expenditure

When you retire most occupational expenses will either cease or be reduced considerably. These include subscriptions for medical defence, GMC and BMA, surgery prop- erty purchase, business accountancy, equipment, books and business motoring.

Similarly it is likely that many high-value family expenses will also have declined. The average GP's mortgage should be past history, as will many of the large costs associated with children and their education (GPs starting their families later may still face university fees).

Using a spreadsheet, list all regular income and expenditure that will continue when you retire. Include any extra expenditure plans such as exotic holidays, recreation, private medical insurance etc.

A suggested list, which is not exhaustive, can be seen in the box below. Give each item a value. You can get an estimate of your forecast NHS pension from the NHS Pensions Agency and other pensions from the relevant provider. You will need to estimate how much savings and therefore investment income you will have by retirement age.

Generally allow 3 per cent income on capital invested for income and growth. Both income and expenses will be at today's values.

Pension is still taxable

When you retire the fall in your income will mean a corresponding fall in income tax and the end of national insurance payments (unless you need to make top-up payments to ensure a full state pension).

The bulk of most GPs' pensions will be taxed at the ordinary rate, presently 22 per cent. Full-time GPs are likely to face paying some top-rate tax, presently 40 per cent, as the current threshold is around £32,000.

For instance, a GP with an NHS pension of £45,000 and other pension/investment income of £5,000 would pay around £12,000 per annum income tax, of which around £5,200 would be top rate.

While this is a considerable fall from tax levels paid while earning, it is nevertheless a large proportion of your retirement income.

It can be difficult to calculate exact figures for tax after retirement, especially if you have complicated finances and/or still qualify for extra tax relief such as from property rental. Remember to exclude tax-free income, such as ISAs and National Savings.

Deduct relevant tax relief and personal allowances (£4,895 for 2005/6, higher if married and 65 or over) for each spouse. Remember that on retirement you will lose your business tax relief on GP expenses such as motoring costs. Exclude items for which tax is already paid (eg some investment income). Use present tax rates and bands to produce a rough figure.

Once all the figures are in place you will be able to see how the total of your projected retirement income stacks up against total forecast expenditure.

Using the information

The purpose of this exercise is to ensure your financial retirement plans are on target, and if not to take appropriate action. If your projected figures look good then you can simply monitor the situation annually.

If you find your income will not be enough to fund retirement at your desired age you then need to consider the following:

· retire later

· make extra pension/savings provision

· reduce planned retirement expenditure.

The first and last of these are unpleasant, so you need to make extra financial provision as soon as possible. If time and/or funds are not sufficient then a mixture of all the above seems inevitable.

Some of those expensive tastes may have to be modified and a careful eye kept on your bills! As above, do continue to monitor annually and further adjust your plans as needed.

Do also remember to allow for inflation in your retirement, the NHS pension is

index-linked by default, however most other income is not. Try to ensure your other income has growth potential.

If longevity predictions are correct we will have, on average, 25 years in retirement. It important that retirement income is in no way devalued.

cash in ­ and out


· NHS pension

· Private/stakeholder/AVC pensions

· Investment income

· Pension lump sum and sale of surgery share (if invested for income)

· Part-time work

· Other (eg state pension from age 65 if you wish to include it)


· Gas/electricity/oil

· Telephone

· Rates

· Buildings and contents insurance

· Building maintenance, refurnishing and repairs

· Motoring costs including repairs and insurance

· Food, groceries

· Private medical insurance

· Entertainment

· Leisure/hobbies

· Holidays

· Subscriptions

· Outstanding loans/mortgage

· Other

· Tax

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