Dr Brian Keighley explains how he made 24-hour retirement work for him
After years juggling my time between practising as a full medical partner at the same time as fulfilling a heavy BMA commitment, I opted for 24-hour retirement. This was a solution to my increasingly problematic workload and meant I could still work two sessions a week. But without careful planning, I could have been in a financial mess.
Save your seniority payments
Because of the delay in accountants submitting practice accounts and primary care organisations receiving superannuation forms, you may find yourself with a big bill to repay for seniority payments they deem you were not entitled to. After 24-hour retirement, a GP has to achieve at least one-third of average partner income (£36,533 in England and £28,833 in Scotland) or two-thirds of the average (£73,066/£57,666) to retain 40% or 100% of your seniority. I would save all your seniority payments for a few years in case your PCO asks for them back.
Plan your liabilities
When you draw your pension you also receive three times your annual pension as a tax-free lump sum. This, however, has to be set against two major outgoings shortly after its receipt. Again, income tax and national insurance contributions are estimated on accounts that have been submitted up to two years before. So you have to leave enough cash for biannual tax bills after retirement.
Even after planning for income and national insurance charges, 20 months after retirement I was faced with a seniority payment clawback, producing an unwelcome reduction of £18,000 from practice payments in a single month, which I had to make good to the practice account from carefully planned savings.
Tax your pension at source
If, like me, you have other employment outside the NHS, it makes sense to do some additional tax planning.
I knew that my continuing practice drawings would be paid tax-free at the time, but my total income would be well over the threshold for marginal income tax rates. I made sure that my pension and other incomes were all taxed on a ‘DO' income tax code – meaning that all income was taxed at source at 40% – thus avoiding any surprise demands from HMRC. So, by carefully laying aside any seniority received in the 18 months after retirement and by arranging taxation at source, I am in the happy position of having lived within my real income and am now expecting a repayment from Inland Revenue.
Get your home in good order
Some use retirement as an opportunity to downsize, but I believe you need more living space, not less. I paid for all the potential costs of home repairs, renewals and additions that would be more difficult to address in the years ahead.
I replaced the double glazing, got the roof repaired, cut down some trees and re-wired – all at a time when I had a surplus of lump-sum cash available.
Put capital away for a rainy day
I decided that I would retain about half of my lump sum in cash, but as a GP I have no real financial expertise – so I sought out an independent financial adviser. She analysed all my assets, the level of my NHS pension and what level of risk I was willing to accept.
Three weeks later I received an analysis of our assets and of the options available – running to 16 pages.
One investment vehicle recommended was an enterprise investment scheme that produces tax-paid income and savings in capital gains tax, but will fall out of my estate for inheritance tax purposes.
Take BMA advice
Pension legislation is complex and the NHS Superannuation Scheme has a set of rules beyond the comprehension of most GPs. You must take advice and, for most, the BMA pensions department (although it will not give investment or accountancy advice) and the practice accountant are the first ports of call.
